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on Risk Management |
| By: | Mikhail Voropaev |
| Abstract: | 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 (standard deviation, VaR and Expected Shortfall) as well as allocation of risk down to individual transactions. The underlying model is the industry standard multi-factor Merton-type model with arbitrary valuation function at horizon (in contrast to the simplistic default-only case). High accuracy of the proposed analytical technique is demonstrated by benchmarking against Monte Carlo simulations. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1007.5433&r=rmg |
| By: | Pierluigi Murro (University of Bari) |
| Abstract: | Because of its importance in understanding and explaining growth, the topic of innovation has received a huge attention in the economic literature. However, our knowledge of the factors that inuence in- novation and its related activities is not as exhaustive as it could be. The present study aims at contributing to analyse the determinants of innovation, with a special focus on rm risk. Employing a rich sample of Italian manufacturing rms, we tested for the impact on innovation of the riskiness of the rm, as proxied by the probability of default. We found that riskiness of enterprise reduces the tendency to innovate for the rms. The main channel through which rm risk aects innovation capability appears to be that of innovation nancing. |
| Keywords: | Technological Change; Financial Risk and Risk Management |
| JEL: | O3 G32 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:bai:series:wp0032&r=rmg |
| By: | Thorsten V. Koeppl (Queen's University); Cyril Monnet (Philadelphia) |
| Abstract: | We study the role of a central counterparty (CCP) in controlling counterparty risk. When trading is organized via a centralized exchange with fungible contracts – like in a futures market – we show that it is optimal to clear trades via a CCP that uses (i) novation to pool the risk of default and (ii) mutualization of losses to insure against the aggregate cost of default in the form of price risk. We then analyze the design of CCP clearing for over-the-counter (OTC) trades where contracts are customized and, hence, not fungible. A CCP can still offer gains from novation by pooling default risk across all customized contracts. Bargaining in OTC trades leads to an inefficient allocation of default risk across trades. A transfer scheme can alleviate this inefficiency, but necessitates novation being offered by a CCP. Hence, the benefit from CCP clearing for OTC markets goes beyond simple netting as it is a prerequisite for an efficient allocation of default risk in such markets. |
| Keywords: | Central Counterparty, Clearing, Over-the-counter Markets, Novation and Mutualization, Default Risk |
| JEL: | G20 G28 D82 H21 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1241&r=rmg |