Related papers: Regulatory Capital Modelling for Credit Risk
Distributional reinforcement learning (RL) -- in which agents learn about all the possible long-term consequences of their actions, and not just the expected value -- is of great recent interest. One of the most important affordances of a…
This paper sets out a framework for the valuation of insurance liabilities that is intended to be economically realistic, elementary, reasonably practically applicable, and as a special case to provide a basis for the valuation in…
Financial undertakings often have to deal with liabilities of the form 'non-hedgeable claim size times value of a tradeable asset', e.g. foreign property insurance claims times fx rates. Which strategy to invest in the tradeable asset is…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
Response adaptive randomization (RAR) is appealing from methodological, ethical, and pragmatic perspectives in the sense that subjects are more likely to be randomized to better performing treatment groups based on accumulating data.…
Integer variables allow the treatment of some portfolio optimization problems in a more realistic way and introduce the possibility of adding some natural features to the model. We propose an algebraic approach to maximize the expected…
Hybrid controlled trials (HCTs), which augment randomized controlled trials (RCTs) with external controls (ECs), are increasingly receiving attention as a way to address limited power, slow accrual, and ethical concerns in clinical…
The paper proposes an original methodology for constructing quantitative statistical models based on multidimensional distribution functions constructed on the basis of the insurance companies' data on inshurance policies (including…
We develop an agent-based simulation of the catastrophe insurance and reinsurance industry and use it to study the problem of risk model homogeneity. The model simulates the balance sheets of insurance firms, who collect premiums from…
Assessing systemic risk in financial markets is of great importance but it often requires data that are unavailable or available at a very low frequency. For this reason, systemic risk assessment with partial information is potentially very…
When a loan is approved for a person or company, the bank is subject to \emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of \emph{security}, which will be collected if the lender…
The field of portfolio selection is an active research topic, which combines elements and methodologies from various fields, such as optimization, decision analysis, risk management, data science, forecasting, etc. The modeling and…
The financial crisis has dramatically demonstrated that the traditional approach to apply univariate monetary risk measures to single institutions does not capture sufficiently the perilous systemic risk that is generated by the…
Macroeconomic factors have a critical impact on banking credit risk, which cannot be directly controlled by banks, and therefore, there is a need for an early credit risk warning system based on the macroeconomy. By comparing different…
Financial markets are exposed to systemic risk (SR), the risk that a major fraction of the system ceases to function, and collapses. It has recently become possible to quantify SR in terms of underlying financial networks where nodes…
The non-identifiability of the competing risks model requires researchers to work with restrictions on the model to obtain informative results. We present a new identifiability solution based on an exclusion restriction. Many areas of…
When banks extend loans to each other, they generate a negative externality in the form of systemic risk. They create a network of interbank exposures by which they expose other banks to potential insolvency cascades. In this paper, we show…
In regulatory proceedings, few issues are more hotly debated than the cost of capital. This article formalises the theoretical foundation of cost of capital estimation for regulatory purposes. Several common regulatory practices lack a…
We extend the Vasi\v{c}ek loan portfolio model to a setting where liabilities fluctuate randomly and asset values may be subject to systemic jump risk. We derive the probability distribution of the percentage loss of a uniform portfolio and…
This paper develops a dynamic internal fraud model for operational losses in retail banking. It considers public operational losses arising from internal fraud in retail banking within a group of international banks. Additionally, the model…