|
on Risk Management |
| By: | Capa Santos, Holger (Escuela Politecnica Nacional (EPN)); Kratz, Marie (ESSEC Business School); Mosquera Munoz, Franklin (Escuela Politecnica Nacional (EPN)) |
| Abstract: | This work presents a contribution on operational risk under a general Bayesian context incorporating information on market risk pro le, experts and operational losses, taking into account the general macroeconomic environment as well. It aims at estimating a characteristic parameter of the distributions of the sources, market risk pro le, experts and operational losses, chosen here at a location parameter. It generalizes under more realistic conditions a study realized by Lambrigger, Shevchenko and Wuthrich, and analyses macroeconomic eects on operational risk. It appears that severities of operational losses are more related to the macroeconomics environment than usually assumed. |
| Keywords: | Basel II; Bayesian inference; Loss distribution approach; Macroeconomics dependence; Operational Risk; Quantitative Risk Management; Solvency 2 |
| Date: | 2012–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-12006&r=rmg |
| By: | Mero, Gulten; Darolles, Serge |
| Abstract: | This paper develops a dynamic approach for assessing hedge fund risk exposures. First, we focus on an approximate factor model framework to deal with the factor selection issue. Instead of keeping the number of factors unchanged, we apply Bai and Ng (2002) and Bai and Ng (2006) to select the appropriate factors at each date. Second, we take into account the instability of asset risk profile by using rolling period analysis in order to estimate hedge fund risk exposures. Individual fund returns instead of index returns are employed in the empirical application to better understand the covariation structure of the data: the common behavior of hedge fund returns is filtered not only from the past historical data (time- series dimension), but also from the cross-section of returns. Finally, we apply our approach to equity hedge funds and replicate the returns of the aggregated index. |
| Keywords: | Hedge funds; mutual funds; financial risk; risk exposure; |
| JEL: | G12 C52 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/9111&r=rmg |
| By: | M. Martin Boyer; Lars Peter Stentoft |
| Abstract: | This paper proposes a unified framework for measuring and managing longevity risk. Specifically, we develop a flexible framework for valuing survivor derivatives like forwards, swaps, as well as options both of European and American style. Our framework is essentially independent of the assumed underlying dynamics and the choice of method for risk neutralization and relies only on the ability to simulate from the risk neutral process. We provide an application to derivatives on the survivor index when the underlying dynamics are from a Lee-Carter model. Our results show that taking the optionality into consideration is important from a pricing perspective. <P> |
| Keywords: | Least squares Monte Carlo, Longevity risk, Reinsurance, Simulation., |
| JEL: | H2 O2 C1 D2 |
| Date: | 2012–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2012s-08&r=rmg |
| By: | Jan Willem van den End; Mark Kruidhof |
| Abstract: | The Basel 3 Liquidity Coverage Ratio (LCR) is a micro prudential instrument to strengthen the liquidity position of banks. However if in extreme scenarios the LCR becomes a binding constraint, the interaction of bank behaviour with the regulatory rule can have negative externalities. We simulate the systemic implications of the LCR by a liquidity stress-testing model, which takes into account the impact of bank reactions on second round feedback effects. We show that a flexible approach of the LCR, in particular one which recognises less liquid assets in the buffer, is a useful macroprudential instrument to mitigate its adverse side-effects during times of stress. At extreme stress levels the instrument becomes ineffective and the lender of last resort has to underpin the stability of the system. |
| Keywords: | Financial stability; Banks; Liquidity; Regulation |
| JEL: | C15 E44 G21 G32 G28 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:342&r=rmg |
| By: | Eric Tymoigne |
| Abstract: | This paper presents a method to capture the growth of financial fragility within a country and across countries. This is done by focusing on housing finance in the United States, the United Kingdom, and France. Following the theoretical framework developed by Hyman P. Minsky, the paper focuses on the risk of amplification of shock via a debt deflation instead of the risk of a shock per se. Thus, instead of focusing on credit risk, for example, financial fragility is defined in relation to the means used to service debts, given credit risk and all other sources of shocks. The greater the expected reliance on capital gains and debt refinancing to meet debt commitments, the greater the financial fragility, and so the higher the risk of debt deflation induced by a shock if no government intervention occurs. In the context of housing finance, this implies that the growth of subprime lending was not by itself a source of financial fragility; instead, it was the change in the underwriting methods in all sectors of the mortgage markets that created a financial situation favorable to the emergence of a debt deflation. Stated alternatively, when nonprime and prime mortgage lending moved to asset-based lending instead of income-based lending, the financial fragility of the economy grew rapidly. |
| Keywords: | Debt Deflation; Minsky; Financial Fragility; Systemic Risk |
| JEL: | E12 E32 E44 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_716&r=rmg |