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Market efficiency and volatility within and across cryptocurrency benchmark indexes Journal of Risk (IF 0.915) Pub Date : 2022-01-01 Dimitrios Koutsoupakis
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A factor-based risk model for multifactor investment strategies Journal of Risk (IF 0.915) Pub Date : 2022-01-01 Frédéric Abergel,Benoit Bellone,François Soupé
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Modeling the exit cashflows of private equity fund investments Journal of Risk (IF 0.915) Pub Date : 2022-01-01 Christian Tausch,Axel Buchner,Georg Schlüchtermann
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High-frequency movements of the term structure of US interest rates: the role of oil market uncertainty Journal of Risk (IF 0.915) Pub Date : 2022-01-01 Elie Bouri,Rangan Gupta,Clement Kyei,Sowmya Subramaniam
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Are there multiple independent risk anomalies in the cross section of stock returns? Journal of Risk (IF 0.915) Pub Date : 2022-01-01 Benjamin Auer,Frank Schuhmacher
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Severe but plausible – or not? Journal of Risk (IF 0.915) Pub Date : 2022-01-01 Stefan Gavell,Mark Kritzman,Cel Kulasekaran
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Estimating future value-at-risk from value samples, and applications to future initial margin Journal of Risk (IF 0.915) Pub Date : 2022-01-01 Narayan Ganesan,Bernhard Hientzsch
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Regularization effect on model calibration Journal of Risk (IF 0.915) Pub Date : 2022-01-01 Mesias Alfeus,Xin-Jiang He,Song-Ping Zhu
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Modeling nonmaturing deposits: a framework for interest and liquidity risk management Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Emil Avsar,Benjamin Ruimy
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Bayesian nonparametric covariance estimation with noisy and nonsynchronous asset prices Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Jia Liu
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An examination of the tail contribution to distortion risk measures Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Miguel Santolino,Jaume Belles-Sampera,José Sarabia,Montserrat Guillen
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Forecasting stock market volatility: an asymmetric conditional autoregressive range mixed data sampling (ACARR-MIDAS) model Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Xinyu Wu,Yang Han,Chaoqun Ma
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Procyclicality control in risk-based margin models Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Lauren Wong,Yang Zhang
The traditional risk-based margin models are risk sensitive but can be procyclical, especially under stressed market conditions. The issue of procyclicality has returned to the forefront of policy discussions due to the significant increases in margins because of market turmoil related to the Covid-19 pandemic. In this paper, we revisit the procyclicality issue in risk-based margin models. Most of
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Risk measures: a generalization from the univariate to the matrix-variate Journal of Risk (IF 0.915) Pub Date : 2021-01-01 María Arias-Serna,Francisco Caro-Lopera,Jean-Michel Loubes
This paper develops a method for estimating value-at-risk and conditional value-at-risk when the underlying risk factors follow a beta distribution in a univariate and a matrix-variate setting. For this purpose, we connect the theory of the Gaussian hypergeometric function of matrix argument and integration over positive definite matrixes. For certain choices of the shape parameters, a and b, analytical
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Modeling realized volatility with implied volatility for the EUR/GBP exchange rate Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Anna Rokicka,Janusz Kudła
This paper concerns the application of implied volatility in modeling realized volatility in the daily, weekly and monthly horizon using high-frequency data for the EUR/GBP exchange rate. The EUR/GBP rate was chosen because it is under stress triggered by the uncertainty related to Brexit. The heterogeneous autoregression (HAR) model of realized volatility and its extensions were used for the study:
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Covariance estimation for risk-based portfolio optimization: an integrated approach Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Andrew Butler,Roy Kwon
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Reinvestigating international crude oil market risk spillovers Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Cuixia Jiang,Yuqian Li,Qifa Xu,Jun Wu
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Performance measures adjusted for the risk situation (PARS) Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Christoph Peters,Roland Seydel
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Forecasting Bitcoin returns: is there a role for the US–China trade war? Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Vasilios Plakandaras,Elie Bouri,Rangan Gupta
Previous studies provide evidence that trade related uncertainty tends to predict an increase in Bitcoin returns. In this paper, we extend the related literature by examining whether the information on the U.S. – China trade war can be used to forecast the future path of Bitcoin returns controlling for various explanatory variables. We apply ordinary least square (OLS) regression, support vector regression
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Body and tail: an automated tail-detecting procedure Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Ingo Hoffmann,Christoph Börner
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Standard errors of risk and performance estimators for serially dependent returns Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Xin Chen,Douglas Martin
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Ruin problems in a discrete risk model in a Markovian environment Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Hyun Joo Yoo,Jerim Kim
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The impact of compounding on bond pricing with alternative reference rates Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Dario Cziráky,Ana Ponikvar
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A numerical approach to the risk capital allocation problem Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Henryk Gzyl,Silvia Mayoral
Capital risk allocation is an important problem in corporate, financial and insurance risk management. There are two theoretical aspects to this problem. The first aspect consists of choosing a risk measure, and the second consists of choosing a capital allocation rule subordinated to the risk measure. When these two complementary aspects are settled, the problem is reduced to a computational problem
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Option pricing using high-frequency futures prices Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Stavros Degiannakis,Christos Floros,Thomas Poufinas,George Filis,Konstantinos Gkillas
Option pricing depends heavily on the volatility measure used. We examine two potential routes to improve the outcome of option pricing: extracting the variance from futures prices instead of the underlying asset prices, and calculating the variance in different frequencies with intraday data instead of daily closing prices. We perform a valuation of call and put options for six volatility measures
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A general framework for the identification and categorization of risks: an application to the context of financial markets Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Micha Bender,Sven Panz
Risk represents a significant part of human interaction and must be considered in decision-making processes across diverse business and research areas. Further, the disregard or unawareness of certain risks may result in inappropriate decisionmaking processes and inadequate risk management practices that may negatively influence firms’ performance. This paper is, to the best of our knowledge, the first
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Optimal foreign exchange hedge tenor with liquidity risk Journal of Risk (IF 0.915) Pub Date : 2021-01-01 Rongju Zhang,Mark Aarons,Gregoire Loeper
We develop an optimal currency hedging strategy that allows fund managers who own foreign assets to choose the hedge tenors that will maximize their foreign exchange (FX) carry returns within a liquidity risk constraint. The strategy assumes that the offshore assets are fully hedged with FX forwards. The chosen liquidity risk metric is cashflow at risk (CFaR). The strategy involves time-dispersing the
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https://www.risk.net/journal-of-risk/7674176/the-impact-of-corporate-social-and-environmental-performance-on-credit-rating-prediction-north-america-versus-europe Journal of Risk (IF 0.915) Pub Date : 2020-08-01 Wei-Ling Huang,I-Chun Tsai,Wen-Yuan Lin
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Fund size and the stability of portfolio risk Journal of Risk (IF 0.915) Pub Date : 2020-08-01 Martin Ewen,Marc Oliver Rieger
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The impact of corporate social and environmental performance on credit rating prediction: North America versus Europe Journal of Risk (IF 0.915) Pub Date : 2020-08-01 Gregor Dorfleitner,Johannes Grebler,Sebastian Utz
We quantify to what extent the quality of credit rating predictions improves through integrating measures of corporate social performance (CSP) in an established credit risk model. We provide comprehensive evidence of the comparative informational advantage of considering CSP in predicting credit ratings of North American and European firms. In the North American sample both environmental and social
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Procyclicality mitigation for initial margin models with asymmetric volatility Journal of Risk (IF 0.915) Pub Date : 2020-06-01 Elena Goldman,Xiangjin Shen
and
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Volatility spillover along the supply chains: a network analysis on economic links Journal of Risk (IF 0.915) Pub Date : 2020-06-01 Theo Berger,Ramazan Gençay
We introduce a financial network approach to quantify the impact of counterparty risk on firms' daily market risk, measured via conditional volatility. Translating conditional volatility into a value-at-risk (VaR) framework allows us to identify extreme losses beyond an estimated loss limit and to determine volatile market regimes. We find that suppliers are exposed to additional fundamental risks
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Range-based volatility forecasting: a multiplicative component conditional autoregressive range model Journal of Risk (IF 0.915) Pub Date : 2020-06-01 Haibin Xie
To capture the "long-memory" effect in volatility, a multiplicative component conditional autoregressive range (MCCARR) model is proposed. We show theoretically that the MCCARR model can capture the long-memory effect well. An empirical study is performed on the Standard & Poor's 500 index, and the results show that the MCCARR model outperforms both conditional autoregressive range and heterogeneous
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Integrating macroeconomic variables into behavioral models for interest rate risk measurement in the banking book Journal of Risk (IF 0.915) Pub Date : 2020-06-01 Zhongfang He
Recent Basel Committee on Banking Supervision standards on interest rate risk in the banking book require the consideration of macroeconomic variables for modeling client behaviors, while no macroeconomic risk scenarios are prescribed by regulators or are generally agreed in the industry. Since macroeconomic variables and interest rates are correlated, projecting macroeconomic variables for interest
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The impact of shareholders’ limited liability on risk- and value-based management Journal of Risk (IF 0.915) Pub Date : 2020-04-01 Christian Eckert,Johanna Eckert
In this paper, we analyze the consequences of shareholders’ limited liability for the risk- and value-based investment decisions made by a nonlife insurer under solvency constraints. We consider an insurance company with shareholders who are not responsible for debts exceeding the amount of their stake. This insurer aims to maximize the shareholder value based on preference functions while simultaneously
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A regime-switching factor model for mean–variance optimization Journal of Risk (IF 0.915) Pub Date : 2020-04-01 Giorgio Costa,Roy Kwon
We formulate a novel Markov regime-switching factor model to describe the cyclical nature of asset returns in modern financial markets. Maintaining a factor model structure allows us to easily derive the asset expected returns and their corresponding covariance matrix. By design, these two parameters are calibrated to better describe the properties of the different market regimes. In turn, these regime-dependent
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Bias-corrected estimators for the Vasicek model: an application in risk measure estimation Journal of Risk (IF 0.915) Pub Date : 2020-01-01 Zi-Yi Guo
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A framework to analyze the financial effects of climate change Journal of Risk (IF 0.915) Pub Date : 2020-01-01 Stuart Turnbull
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Optimal reinsurance with expectile under the Vajda condition Journal of Risk (IF 0.915) Pub Date : 2020-01-01 Yanhong Chen
In this paper, we revisit optimal reinsurance problems by minimizing the adjusted value of the liability of an insurer, which encompasses a risk margin. The risk margin is determined by expectile. To reflect the spirit of reinsurance of protecting the insurer, we assume that both the insurer’s retained loss and the proportion paid by a reinsurer are increasing in indemnity. The premium principles are
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Modeling loss given default regressions Journal of Risk (IF 0.915) Pub Date : 2020-01-01 Phillip Li,Xiaofei Zhang,Xinlei Zhao
We investigate the puzzle in the literature that various parametric loss given default (LGD) statistical models perform similarly, by comparing their performance in a simulation framework. We find that, even using the full set of explanatory variables from the assumed data-generating process where noise is minimized, these models still show a similarly poor performance in terms of predictive accuracy
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Bank leverage and capital bias adjustment through the macroeconomic cycle Journal of Risk (IF 0.915) Pub Date : 2020-01-01 Andy Jia-Yuh Yeh
We assess the quantitative effects of the recent proposal for more robust bank capital adequacy. Our theoretical proof and evidence accord with the core thesis that banks become more stable by increasing their equity capital cushion to absorb extreme losses in times of severe financial stress. This analysis contributes to the ongoing policy debate on total capital adequacy. Our Monte Carlo simulation
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Monetary policy uncertainty and jumps in advanced equity markets Journal of Risk (IF 0.915) Pub Date : 2020-01-01 Elie Bouri,Konstantinos Gkillas,Rangan Gupta,Clement Kyei
We analyze the role of monetary policy uncertainty in predicting jumps in nine advanced equity markets. The standard linear Granger causality test detects weak evidence of monetary policy uncertainty causing jumps. But, given strong evidence of nonlinearity between jumps and monetary policy uncertainty, we next use a nonparametric causality-in-quantiles test, since the linear model is misspecified
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Currency risk in foreign currency accounts for small and medium-sized businesses Journal of Risk (IF 0.915) Pub Date : 2019-12-01 Lorenzo Reus
This paper estimates the currency exposure before and after the hedging of active foreign currency (FC) accounts, using stochastic models for spot exchange rates and cashflow movements. It examines a simple hedging policy that is typically applied by small and medium-sized businesses that do not have the expertise or resources to execute sophisticated strategies. The performance of the policy is measured
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The implicit constraints of Fundamental Review of the Trading Book profit-and-loss-attribution testing and a possible alternative framework Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Alessandro Pogliani,Federico Paganini,Marilena Rata
The Fundamental Review of the Trading Book (FRTB) is a relatively new regulatory framework, proposed by the Basel Committee on Banking Supervision and dedicated to market risk. Its major innovation is the profit-and-loss-attribution (PLA) test, a tool designed to verify the alignment between theoretical changes in a trading desk portfolio’s value, based on an institution’s risk-measurement model (risk
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Nonparametric versus parametric expected shortfall Journal of Risk (IF 0.915) Pub Date : 2019-01-01 R. Douglas Martin,Shengyu Zhang
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Recursive estimation of the exponentially weighted moving average model Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Radek Hendrych,Tomas Cipra
The exponentially weighted moving average (EWMA) model is a particular modeling scheme, supported by RiskMetrics, that is capable of forecasting the current level of volatility of financial time series. It is designed to track changes in the conditional variance of financial returns by assigning exponentially decreasing weights to observed past squared measurements. The aim of this paper is twofold
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A generic stress testing framework with related economic shocks and possible regulatory intervention Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Dror Parnes, Michael Jacobs Jr.
In this study, we develop and demonstrate a universal framework for supervisory stress tests of financial institutions that considers the probable dependencies among macroeconomic shocks and possible regulatory intervention. The proposed differential equations model can assess the combined influence of related shocks in various markets and economic attributes on banks’ excess capital beyond minimum
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Loss given default estimation: a two-stage model with classification tree-based boosting and support vector logistic regression Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Yuta Tanoue, Satoshi Yamashita
The Basel Accords allow banks to estimate credit risk. Accordingly, more attention has been dedicated recently to the analysis of loss given default (LGD) and the development of an LGD estimation model. In this study, using a data set composed of five Japanese regional banks, we propose an LGD estimation model using a two-stage model, classification tree-based boosting and support vector regression
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Counterparty risk: credit valuation adjustment variability and value-at-risk Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Michele Breton, Oussama Marzouk
The third installment of the Basel Accords advocates a capital charge against credit valuation adjustment (CVA) variability. We propose an efficient numerical approach that allows us to compute risk measures for the CVA process by assessing the distribution of the CVA at a given horizon. This approach relies on a recursive formulation of the CVA, yielding the adjustment as a function of both the time
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Could holding multiple safe havens improve diversification in a portfolio? The extended skew-t vine copula approach Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Meng-Shiuh Chang
We propose a vine copula model based on a bivariate extended skew-t distribution and derive its corresponding multivariate tail dependence function. Our simulations demonstrate that the proposed estimator dominates the conventional vine copula approach in the estimation of multivariate tail dependence. We apply our model to a safe haven analysis of US dollars (US$) and gold prices against stocks. The
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Rating migrations of US financial institutions: are different outcomes equivalent? Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Huong Dieu Dang
This study employs a competing risks approach to examine the rating migrations of US financial institutions (FIs) during the period 1984–2006. It finds that downgrades to alternative major rating categories require separate models, while upgrades can be treated as equivalent in the same analysis. Different downgrade routes exhibit different within-rating heterogeneity and time heterogeneity. The effect
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Backtesting expected shortfall: a simple recipe? Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Felix Moldenhauer, Marcin Pitera
We propose a new backtesting framework for expected shortfall (ES) that can be used by regulators. Instead of looking at estimated capital reserve and realized cashflow separately, one can bind them into a secured position, for which risk measurement is much easier. Using this simple concept combined with monotonicity of ES with respect to its target confidence level, we introduce a natural and efficient
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Making Cornish–Fisher fit for risk measurement Journal of Risk (IF 0.915) Pub Date : 2019-01-01 John D. Lamb, Maura E. Monville, Kai-Hong Tee
The truncated Cornish–Fisher inverse expansion is well known and has been used to approximate value-at-risk and conditional value-at-risk. The following are also known. The expansion is available only for a limited range of skewness and kurtosis. The distribution approximation it gives is poor for larger values of skewness or kurtosis. We develop a computational method to find a unique corrected Cornish–Fisher
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The efficiency of the Anderson–Darling test with a limited sample size: an application to backtesting counterparty credit risk internal models Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Matteo Formenti, Luca Spadafora, Marcello Terraneo, Fabio Ramponi
This work presents a theoretical and empirical evaluation of the Anderson–Darling test when the sample size is limited. The test can be used to backtest risk factor dynamics in the context of counterparty credit risk modeling. We show the limits of the test when backtesting the distributions of an interest rate model over long time horizons, and we propose a modified version of it that can more efficiently
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Second-order risk of alternative risk parity strategies Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Simone Bernardi, Markus Leippold, Harald Lohre
The concept of second-order risk operationalizes the estimation risk induced by model uncertainty in portfolio construction. We study its contribution to the realized volatility of recently developed alternative risk parity strategies that invest in an uncorrelated decomposition of the asset universe. For each strategy, we derive closed-form solutions for the second-order risk, subsequently illustrated
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Range-based volatility forecasting: an extended conditional autoregressive range model Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Haibin Xie, Xinyu Wu
This paper proposes an extended conditional autoregressive range (EXCARR) model to describe the range-based volatility dynamics of financial assets. Our EXCARR model not only takes the conditional autoregressive range (CARR) model as a special case but also considers the asymmetry between the upward range and the downward range. Empirical studies performed on a variety of stock indexes show that the
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Parameter estimation, bias correction and uncertainty quantification in the Vasicek credit portfolio model Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Marius Pfeuffer, Maximilian Nagl, Matthias Fischer, Daniel Rösch
This paper is devoted to the parameterization of correlations in the Vasicek credit portfolio model. First, we analytically approximate standard errors for value-at-risk and expected shortfall based on the standard errors of intra-cohort correlations. Second, we introduce a novel copula-based maximum likelihood estimator for inter-cohort correlations and derive an analytical expression of the standard
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The implications of value-at-risk and short-selling restrictions for portfolio manager performance Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Fulbert Tchana Tchana, Georges Tsafack
After the recent financial crisis and the tightening of the regulation processes, portfolio managers regularly face strong restrictions, with complex implications for their performance. This paper provides a framework to analyze the performance of a portfolio manager under a value-at-risk (VaR) constraint, in a Markowitz setup. Using appropriate parameters, we calibrate the model for a manager with
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Estimating maturity profiles of nonmaturing deposits Journal of Risk (IF 0.915) Pub Date : 2019-01-01 Fidelis Musakwa, Eric Schaling
Understanding the maturity profiles of nonmaturing deposits is vital to assess a bank’s funding liquidity risk and interest rate risk. Estimating these maturity profiles is, however, difficult because banks experience regular cash inflows and outflows on nonmaturing deposit accounts. As a result, it is hard to ascertain the time origin of each dollar deposit constituting the total outstanding balance