nep-rmg New Economics Papers
on Risk Management
Issue of 2014‒10‒17
six papers chosen by
Stan Miles
Thompson Rivers University

  1. Switzerland: Technical Note-Systemic Risk and Contagion Analysis By International Monetary Fund. Monetary and Capital Markets Department
  2. Stress-testing banks’ corporate credit portfolio By O. de Bandt; N. Dumontaux; V. Martin; D. Médée
  3. Switzerland: Technical Note-Oversight, Supervision, and Risk Management of Financial Market Infrastructures By International Monetary Fund. Monetary and Capital Markets Department
  4. Mean-variance hedging based on an incomplete market with external risk factors of non-Gaussian OU processes By Wanyang Dai
  5. A Hurricane Risk and Loss Assessment of Caribbean Agriculture By Preeya Mohan; Eric Strobl
  6. Foreign bank subsidiaries'default risk during the global crisis : what factors help insulate affiliates from their parents ? By Anginer, Deniz; Cerutti, Eugenio; Martinez Peria, Maria Soledad

  1. By: International Monetary Fund. Monetary and Capital Markets Department
    Keywords: Financial Sector Assessment Program;Financial sector;Banks;Financial risk;Financial stability;Risk management;Switzerland;
    Date: 2014–09–03
  2. By: O. de Bandt; N. Dumontaux; V. Martin; D. Médée
    Abstract: The paper describes the methods used by the French Banking Supervision Authority (ACP) to run stress tests for the corporate credit portfolio, through credit migration matrices (or transition matrices). This approach is currently used for “top-down” stress tests exercises. Developed for Basel II, it is still relevant under the Basel III framework. It includes sufficient flexibility to accommodate the severe crisis period observed recently. The paper introduces the basic model underlying the approach, largely based on Merton’s model; it then describes carefully the different steps for its practical implementation, providing hints on how it can be extended to other banking sectors. Finally the paper comments a few outputs of a stress testing exercise.
    Keywords: credit risk, corporate, stress tests, migration matrices.
    JEL: G21 G28 G32 E44
    Date: 2013
  3. By: International Monetary Fund. Monetary and Capital Markets Department
    Keywords: Financial Sector Assessment Program;Securities markets;Payment systems;Securities regulations;Capital markets;Risk management;Switzerland;
    Date: 2014–09–03
  4. By: Wanyang Dai
    Abstract: In this paper, we prove the global risk optimality of the hedging strategy of contingent claim, which is explicitly (or called semi-explicitly) constructed for an incomplete financial market with external risk factors of non-Gaussian Ornstein-Uhlenbeck (NGOU) processes. Analytical and numerical examples are both presented to illustrate the effectiveness of our optimal strategy. Our study establishes the connection between our financial system and existing general semimartingale based discussions by justifying required conditions. More precisely, there are three steps involved. First, we firmly prove the no-arbitrage condition to be true for our financial market, which is used as an assumption in existing discussions. In doing so, we explicitly construct the square-integrable density process of the variance-optimal martingale measure (VOMM). Second, we derive a backward stochastic differential equation (BSDE) with jumps for the mean-value process of a given contingent claim. The unique existence of adapted strong solution to the BSDE is proved under suitable terminal conditions including both European call and put options as special cases. Third, by combining the solution of the BSDE and the VOMM, we reach the justification of the global risk optimality for our hedging strategy.
    Date: 2014–10
  5. By: Preeya Mohan; Eric Strobl
    Abstract: Hurricanes act as large external shocks potentially causing considerable damage to agricultural production in the Caribbean. While a number of existing studies have estimated their historic economic impact, arguably the wider community and policy makers are more concerned about their future risk and potential losses, since this type of information is useful for disaster preparedness and mitigation strategy and policy. This paper implements a new approach to undertake a quantitative risk and loss assessment of the agricultural sector of Caribbean island economies. To this end we construct an expected loss function that uses synthetically generated, as well as historical, hurricane tracks within a wind field model that takes cropland exposure derived from satellite data into consideration. The results indicate that expected losses are potentially large but vary considerably across the region, where the smaller islands are considerably more likely to be negatively impacted.
    Keywords: hurricanes; agriculture, Caribbean, risk assessment
    Date: 2014–09–25
  6. By: Anginer, Deniz; Cerutti, Eugenio; Martinez Peria, Maria Soledad
    Abstract: This paper examines the association between the default risk of foreign bank subsidiaries and their parents during the global financial crisis, with the purpose of understanding what factors can help insulate affiliates from their parents. The paper finds evidence of a significant positive correlation between parent banks'and foreign subsidiaries'default risk. This correlation is lower for subsidiaries that have higher capital, retail deposit funding, and profitability ratios and that are more independently managed from their parents. Host country regulations also influence the extent to which shocks to the parents affect the subsidiaries'default risk. In particular, the correlation between the default risk of the subsidiary and the parent is lower for subsidiaries operating in countries that impose higher capital, reserve, provisioning, and disclosure requirements and tougher restrictions on bank activities.
    Keywords: Banks&Banking Reform,Debt Markets,Corporate Law,Access to Finance,Bankruptcy and Resolution of Financial Distress
    Date: 2014–10–01

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