nep-rmg New Economics Papers
on Risk Management
Issue of 2010‒04‒04
four papers chosen by
Stan Miles
Thompson Rivers University

  1. Behavioral approach to market and default risks modeling By Taguedong, Sylvain Chamberlain
  2. A macroeconomic credit risk model for stress testing the South African banking sector By Havrylchyk, Olena
  3. The Risk of Operational Incidents in Banking Institutions By Isaic-Maniu, Alexandru; Dragan, Irina-Maria
  4. Post Crisis Challenges to Bank Regulation By Xavier Freixas

  1. By: Taguedong, Sylvain Chamberlain
    Abstract: In this paper we discuss popular market and default risks modeling. We highlight some shortcomings. Then, we present the prospect and cumulative prospect theories. We discuss again the previous models under behavioral finance framework and get different results. Based on these results, we propose a new Value at Risk measure and make suggestions on other measures.
    Keywords: Noise Trading; Value at Risk; Probability of Default; Risk Measure Coherence; Risk Measure's Estimator Coherence
    JEL: G1 C5 G0
    Date: 2009–12–27
  2. By: Havrylchyk, Olena
    Abstract: In this study a macroeconomic credit risk model for stress testing the South African banking sector was developed. The findings demonstrate that macroeconomic shocks have a large impact on credit losses. However, owing to a high level of current capitalisation, the South African banking sector is resilient to severe economic shocks. At the same time, banks are rather sensitive to changes in real interest rates and property prices due to the high share of mortgages at flexible interest rates in their credit portfolios.
    Keywords: macro stress testing; financial stability; credit risk
    JEL: G18 G21
    Date: 2010–03
  3. By: Isaic-Maniu, Alexandru; Dragan, Irina-Maria
    Abstract: Banking-financial institutions are organizations which might be included in the category of complex systems. Consequently, they can be applied after adaptation and particularization, in the general description and assessment methods of the technical or organizational systems. The banking-financial system faces constrains regarding the functioning continuity. Interruptions in continuity as well as operational incidents represent risks which can lead to the interruption of financial flows generation and obviously of profit. Banking incidents include from false banknote, cloned cards, informatics attacks, false identity cards to ATM attacks. The functioning of banking institutions in an incident-free environment generates concern from both risk assessment and forecasting points of view.
    Keywords: operational risk, banking reliability, complex systems, incident probability, the risk of functioning interruption
    JEL: C46 G32
    Date: 2009–12
  4. By: Xavier Freixas
    Abstract: The current crisis has swept aside not only the whole of the US investment banking industry but also the consensual perception of banking risks, contagion and their implication for banking regulation. As everyone agrees now, risks where mispriced, they accumulated in neuralgic points of the financial system, and where amplified by procyclical regulation as well as by the instability and fragility of financial institutions. The use of ratings as carved in stone and lack of adequate procedure to swiftly deal with systemic institutions bankruptcy (whether too-big-to-fail, too complex to fail or too-many to fail). The current paper will not deal with the description and analysis of the crisis, already covered in other contributions to this issue will address the critical choice regulatory authorities will face. In the future regulation has to change, but it is not clear that it will change in the right direction. This may occur if regulatory authorities, possibly influenced by public opinion and political pressure, adopt an incorrect view of financial crisis prevention and management. Indeed, there are two approaches to post-crisis regulation. One is the rare event approach, whereby financial crises will occur infrequently, but are inescapable.
    Date: 2009–12

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