Related papers: Operational risk modeled analytically II: the cons…
As a natural extension to the standard conformal prediction method, several conformal risk control methods have been recently developed and applied to various learning problems. In this work, we seek to control the conformal risk in…
An interbank market lets participants pool the risk arising from the combination of illiquid investments and random withdrawals by depositors. But it also creates the potential for one bank's failure to trigger off avalanches of further…
Banking system crises are complex events that in a short span of time can inflict extensive damage to banks themselves and to the external economy. The crisis literature has so far identified a number of distinct effects or channels that…
We propose a stochastic model allowing property and casualty insurers with multiple business lines to measure their liabilities for incurred claims risk and calculate associated capital requirements. Our model includes many desirable…
In order to properly manage risk, practitioners must understand the aggregate risks they are exposed to. Additionally, to properly price policies and calculate bonuses the relative riskiness of individual business units must be well…
Regulatory requirements dictate that financial institutions must calculate risk capital (funds that must be retained to cover future losses) at least annually. Procedures for doing this have been well-established for many years, but recent…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
Typically, operational risk losses are reported above a threshold. Fitting data reported above a constant threshold is a well known and studied problem. However, in practice, the losses are scaled for business and other factors before the…
The European insurance sector will soon be faced with the application of Solvency 2 regulation norms. It will create a real change in risk management practices. The ORSA approach of the second pillar makes the capital allocation an…
Managing a portfolio to a risk model can tilt the portfolio toward weaknesses of the model. As a result, the optimized portfolio acquires downside exposure to uncertainty in the model itself, what we call "second order risk." We propose a…
Calibration is a vital aspect of the performance of risk prediction models, but research in the context of ordinal outcomes is scarce. This study compared calibration measures for risk models predicting a discrete ordinal outcome, and…
Risk diversification is the basis of insurance and investment. It is thus crucial to study the effects that could limit it. One of them is the existence of systemic risk that affects all the policies at the same time. We introduce here a…
We investigate the macroeconomic consequences of narrow banking in the context of stock-flow consistent models. We begin with an extension of the Goodwin-Keen model incorporating time deposits, government bills, cash, and central bank…
We explore the effects of architecture and training objective choice on amortized posterior predictive inference in probabilistic conditional generative models. We aim this work to be a counterpoint to a recent trend in the literature that…
The classical reduced-form and filtration expansion framework in credit risk is extended to the case of multiple, non-ordered defaults, assuming that conditional densities of the default times exist. Intensities and pricing formulas are…
We introduce a statistical model for operational losses based on heavy-tailed distributions and bipartite graphs, which captures the event type and business line structure of operational risk data. The model explicitly takes into account…
Spillover of economic outcomes often arises over multiple networks, and distinguishing their separate roles is important in empirical research. For example, the direction of spillover between two groups (such as banks and industrial sectors…
The negative externalities from an individual bank failure to the whole system can be huge. One of the key purposes of bank regulation is to internalize the social costs of potential bank failures via capital charges. This study proposes a…
Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…
A novel dynamical model for the study of operational risk in banks and suitable for the calculation of the Value at Risk (VaR) is proposed. The equation of motion takes into account the interactions among different bank's processes, the…