Related papers: Analytical Framework for Credit Portfolios
A novel optimisation framework through quadratic nonlinear projection is introduced for credit portfolio when the portfolio risk is measured by Conditional Value-at-Risk (CVaR). The whole optimisation procedure to search toward the optimal…
The value-at-risk of a delta-gamma approximated derivatives portfolio can be computed by numerical integration of the characteristic function. However, while the choice of parameters in any numerical integration scheme is paramount, in…
In this paper, we study large losses arising from defaults of a credit portfolio. We assume that the portfolio dependence structure is modelled by the Archimedean copula family as opposed to the widely used Gaussian copula. The resulting…
For long term investments, model portfolios are defined at the level of indexes, a setup known as Strategic Asset Allocation (SAA). The possible outcomes at a scale of a few decades can be obtained by Monte Carlo simulations, resulting in a…
This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…
${\rm CoVaR}$ is one of the most important measures of financial systemic risks. It is defined as the risk of a financial portfolio conditional on another financial portfolio being at risk. In this paper we first develop a Monte-Carlo…
We explain in detail how to estimate mean values and assess statistical errors for arbitrary functions of elementary observables in Monte Carlo simulations. The method is to estimate and sum the relevant autocorrelation functions, which is…
Accurately estimating risk measures for financial portfolios is critical for both financial institutions and regulators. However, many existing models operate at the aggregate portfolio level and thus fail to capture the complex…
We introduce a new method to calculate the credit exposure of European and path-dependent options. The proposed method is able to calculate accurate expected exposure and potential future exposure profiles under the risk-neutral and the…
Finance is one of the promising field for industrial application of quantum computing. In particular, quantum algorithms for calculation of risk measures such as the value at risk and the conditional value at risk of a credit portfolio have…
The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…
We consider the problem of simulating loss probabilities and conditional excesses for linear asset portfolios under the t-copula model. Although in the literature on market risk management there are papers proposing efficient variance…
Measuring model risk is required by regulators on financial and insurance markets. We separate model risk into parameter estimation risk and model specification risk, and we propose expected shortfall type model risk measures applied to…
Determining risk contributions of unit exposures to portfolio-wide economic capital is an important task in financial risk management. Computing risk contributions involves difficulties caused by rare-event simulations. In this study, we…
We estimate generic statistical properties of a structural credit risk model by considering an ensemble of correlation matrices. This ensemble is set up by Random Matrix Theory. We demonstrate analytically that the presence of correlations…
This paper addresses the importance of incorporating various risk measures in portfolio management and proposes a dynamic hybrid portfolio optimization model that combines the spectral risk measure and the Value-at-Risk in the mean-variance…
This paper proposes analytic forms of portfolio CoVaR and CoCVaR on the normal tempered stable market model. Since CoCVaR captures the relative risk of the portfolio with respect to a benchmark return, we apply it to the relative portfolio…
There are various metrics for financial risk, such as value at risk (VaR), expected shortfall, expected/unexpected loss, etc. When estimating these metrics, it was very common to assume Gaussian distribution for the asset returns, which may…
Computing risk measures of a financial portfolio comprising thousands of derivatives is a challenging problem because (a) it involves a nested expectation requiring multiple evaluations of the loss of the financial portfolio for different…
In this paper we analyze and compare the use of Monte Carlo, Quasi-Monte Carlo and hybrid Monte Carlo-methods in the credit risk management system Credit Metrics by J.P.Morgan. We show that hybrid sequences used for simulations, in a…