Advances in Risk Management

Contents......Page 6
Acknowledgements......Page 12
Notes on the Contributors......Page 13
Introduction......Page 22
1.1 Introduction......Page 26
1.2 Measuring operational risk......Page 28
1.3 The collection threshold......Page 33
1.4 Empirical analysis......Page 36
1.5 Conclusion......Page 41
2.1 Introduction......Page 47
2.2 Risk measure with diversification......Page 49
2.3 Numerical example......Page 56
2.4 Implementation......Page 58
2.5 Pricing portfolio insurance......Page 62
2.6 Conclusion......Page 68
3.1 Introduction......Page 72
3.2 Sensitivity analysis background......Page 75
3.3 Effect of relative weight changes......Page 76
3.4 Importance of portfolio weights in GARCH volatility estimation models......Page 78
3.5 Empirical results: trading strategies through sensitivity analysis......Page 81
3.6 Conclusion......Page 89
4.1 Introduction......Page 94
4.2 The model......Page 95
4.3 Generalized duration and convexity......Page 97
4.4 Hedging ratios......Page 99
4.5 A proposal of a solution for the limitations of the conventional duration......Page 100
4.6 Conclusion......Page 108
5.1 Introduction......Page 111
5.2 Variations on stochastic volatility and conditional volatility......Page 113
5.4 Interest rate term structure models......Page 117
5.5 Methodology......Page 119
5.6 Data and calibration of the Fong and Vasicek model......Page 122
5.7 Simulation......Page 123
5.8 Empirical results......Page 124
5.9 Conclusion......Page 127
6.1 Introduction......Page 132
6.2 The general model......Page 135
6.3 A stochastic volatility model......Page 139
6.4 Simulation study......Page 143
6.5 Conclusion......Page 151
7.1 Introduction......Page 157
7.2 Merton-style models......Page 158
7.3 Intensity-based models......Page 161
7.4 Comparisons between some dependence indicators......Page 164
7.5 Extensions of the basic intensity-based model......Page 168
7.6 Conclusion......Page 175
8.1 Introduction......Page 181
8.2 What are weather derivatives?......Page 182
8.3 Defining risk for weather derivative portfolios......Page 184
8.4 Basic methods for estimating the risk in weather derivative portfolios......Page 185
8.6 Accurate estimation of the correlation matrix......Page 187
8.7 Dealing with non-normality......Page 188
8.8 Estimating model error......Page 189
8.9 Incorporating hedging constraints......Page 190
8.10 Consistency between the valuation of single contracts and portfolios......Page 191
8.12 Estimating VaR......Page 192
8.13 Conclusion......Page 193
9.1 Introduction......Page 195
9.2 Modeling the evolution of an inflation index......Page 196
9.3 Optimal portfolios with inflation linked products......Page 198
9.4 Hedging with inflation linked products......Page 207
9.5 Conclusion......Page 214
10.1 Introduction......Page 216
10.2 From mathematical theory to financial practise......Page 219
10.3 An illustration of model risk......Page 220
10.4 The role of models for derivatives......Page 222
10.5 The model-building process and model risk-creation......Page 224
10.6 What if the model is wrong? a case study......Page 226
10.7 Eleven rules for managing model risk......Page 228
10.8 Conclusion......Page 235
11.1 Introduction......Page 238
11.3 Review of existing methods for backtesting......Page 239
11.4 An extension: the cross-section approach......Page 242
11.5 Applications......Page 244
11.6 Conclusion......Page 249
12.2 Data and descriptive statistics......Page 251
12.3 Correlation jumps and volatility behavior......Page 253
12.5 Conclusion......Page 262
13.1 Introduction......Page 266
13.2 Covariance structure of asset returns and optimal portfolio weights......Page 268
13.3 Multivariate statistical surveillance......Page 271
13.4 Simultaneous statistical surveillance......Page 276
13.5 A comparison of the multivariate and simultaneous control charts......Page 278
13.6 Conclusion......Page 283
14.1 Introduction......Page 290
14.2 Empirical Methodology and Data......Page 292
14.3 Results......Page 295
14.4 Conclusion......Page 301
15.1 Introduction......Page 303
15.2 Systematic risk and the perfect economy......Page 305
15.3 Total risk and the real economy......Page 307
15.4 The NPV probability distribution and the CLT: theoretical results......Page 310
15.5 The NPV probability distribution and the CLT: simulation models and statistical tests......Page 313
15.6 The NPV probability distribution and the CLT: simulation results......Page 314
15.7 Conclusion......Page 318
16.1 Introduction......Page 328
16.2 Data......Page 330
16.3 The econometric approach......Page 334
16.4 Empirical results......Page 337
16.5 Conclusion......Page 346
17.1 Introduction......Page 352
17.2 The econometric framework......Page 354
17.3 Data and preliminary analysis......Page 356
17.4 Results......Page 360
17.5 Asymmetries analysis......Page 367
17.6 Volatility spillovers......Page 370
17.7 Conclusion......Page 373
18.1 Introduction......Page 378
18.2 Model and Mathematical setup......Page 380
18.3 Analytical expression of the total hedging error......Page 382
18.4 Numerical results......Page 384
18.5 Conclusion......Page 388
B......Page 390
C......Page 391
D......Page 392
F......Page 393
I......Page 394
M......Page 395
P......Page 397
S......Page 398
T......Page 399
W......Page 400
Z......Page 401