risk-management


risk management - Consistency of economic scenarios in nested stochastics simulation

The Global Calibration paper outlines a method which is one approach to resolve inconsistencies between pricing and calculating risk measures.... Read More


risk - How to calculate the distortion function for CVaR?

I have solved it myself. The key was to realize that for $X \geq 0$ and $S_X(t) = \mathbb{P}(X>t)$ $$ \int0^\infty S(t) dt = \int0^1 F_X^{-1}(u) du = \mathbb{E}\left[X \right].$$ This is elegantly ex... Read More


quant trading strategies - New ways of communicating risk

Try to give David Spiegelhalter a read/listen to David Spiegelhalter's work and research. He is a statistician and a Professor of the Public Understanding of Risk at Cambridge England. Rather than n... Read More


Quantitative risk model for an open real estate mutual fund in Europe

First of all, usually these models are heavily adapted to a specific country (even for Europe), real estate class (housing, commercial) and market (secondary, primary). In general I would say it's ve... Read More


risk management - What is the optimal strategy when there is an equal chance for gain or loss but the size of the potential gain is larger?

This is practically a textbook case begging for the Kelly criterion. In your specific example, the optimal trade size is $f^A$, where $f^$ maximizes the average rate of return $$\mathbb{E}[\log (X)]... Read More


risk - Credit VaR Formula

Here is the excel formula with steps: =NORMSDIST((NORMSINV(0.02)+NORMSINV(0.999)×SQRT(0.1))/SQRT(1−0.1)) =NORMSDIST((−2.054+3.09×SQRT(0.1))/SQRT(1−0.1)) =NORMSDIST(-1.135) =12.8% They keep changing t... Read More


Examples of Spectral Risk Measures

I believe that Prospect Theory (as defined by Kahneman, Amos, and Tversky) implicitly makes use spectral risk measures. Though I am not able to find any literature linking the two, I think there is c... Read More


risk management - Extracting Default probability from a single CDS

Yes, you can assume that, since you cannot extract the probability of default for shorter maturity, but for the 5-years only CDS one, because of unavailability of data. Of course, you'll have to upda... Read More


Which lags or percentiles should be run in a batch when calculating Value-at-Risk?

Standard (read: regulators will accept it) could be a one day, 99% VaR calculated with two years of historical data. A minimum of one year of history is needed although this is not the norm. Typicall... Read More


mathematics - What is the analytic value of an asset's risk contribution, if $n=2$?

You see, you added something new to the source formula, i.e. a dependence between weights of different assets: $w2 = 1 - w1$. Let's try to forget that they are related to each other and vary them ind... Read More