Related papers: Functional Correlation Approach to Operational Ris…
Reasoning about causes and effects naturally arises in the engineering of safety-critical systems. A classical example is Fault Tree Analysis, a deductive technique used for system safety assessment, whereby an undesired state is reduced to…
Functional data analysis, which models data as realizations of random functions over a continuum, has emerged as a useful tool for time series data. Often, the goal is to infer the dynamic connections (or time-varying conditional…
Individual risk models need to capture possible correlations as failing to do so typically results in an underestimation of extreme quantiles of the aggregate loss. Such dependence modelling is particularly important for managing credit…
Recent empirical evidence has highlighted the crucial role of jumps in both price and volatility within the cryptocurrency market. In this paper, we integrate price--volatility co-jumps and volatility short-term dependency into a coherent…
Cascading failures triggered by trivial initial events are encountered in many complex systems. It is the interaction and coupling between components of the system that causes cascading failures. We propose a simple model to simulate…
We propose to model multivariate volatility processes based on the newly defined conditionally uncorrelated components (CUCs). This model represents a parsimonious representation for matrix-valued processes. It is flexible in the sense that…
Bank failures can stem from runs on otherwise solvent banks or from losses that render banks insolvent, regardless of withdrawals. Disentangling the relative importance of liquidity and solvency in explaining bank failures is central to…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
The relationship between set-valued risk measures for processes and vectors on the optional filtration is investigated. The equivalence of risk measures for processes and vectors and the equivalence of their penalty function formulations…
Risk measures for multivariate financial positions are studied in a utility-based framework. Under a certain incomplete preference relation, shortfall and divergence risk measures are defined as the optimal values of specific set…
Reliable calculations of financial risk require that the fat-tailed nature of prices changes is included in risk measures. To this end, a non-Gaussian approach to financial risk management is presented, modeling the power-law tails of the…
Bank's asset fire sales and recourse to central bank credit are modelled with continuous asset liquidity, allowing to derive the liability structure of a bank. Both asset sales liquidity and the central bank collateral framework are modeled…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…
Failure statistics of banks in the US show that their sizes are highly unequal (ranging from a few tens of thousands to over a billion dollars) and also, they come in `waves' of intermittent activities. This motivates a self-organized…
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…
We introduce a Hawkes-like process and study its scaling limit as the system becomes increasingly endogenous. We derive functional limit theorems for intensity and fluctuations. Then, we introduce a high-frequency model for a price of a…
Accurate modeling of operational risk is important for a bank and the finance industry as a whole to prepare for potentially catastrophic losses. One approach to modeling operational is the loss distribution approach, which requires a bank…
Building resilience into today's complex infrastructures is critical to the daily functioning of society and its ability to withstand and recover from natural disasters, epidemics, and cyber-threats. This study proposes quantitative…
A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for…
In recent years research on credit risk modelling has mainly focused on default probabilities. Recovery rates are usually modelled independently, quite often they are even assumed constant. Then, however, the structural connection between…