Innovations in Quantitative Risk Management : : TU München, September 2013.

• Superior document: Springer Proceedings in Mathematics and Statistics Series ; v.99
• Author: Glau, Kathrin.
• TeilnehmendeR: Scherer, Matthias.; Zagst, Rudi.
• Place / Publishing House: Cham : : Springer International Publishing AG,, 2015.; {copy}2015.
• Year of Publication: 2015
• Edition: 1st ed.
• Language: English
• Series: Springer Proceedings in Mathematics and Statistics Series
• Physical Description: 1 online resource (434 pages)

Table of Contents

Intro -- Preface I -- Preface II -- Contents -- Part I Markets, Regulation,and Model Risk -- A Random Holding Period Approach for Liquidity-Inclusive Risk Management -- 1 Introduction -- 1.1 Earlier Literature -- 1.2 Different Risk Horizons Are Acknowledged by BCBS -- 2 The Univariate Case -- 2.1 A Brief Review on the Stochastic Holding Period Framework -- 2.2 Semi-analytic Solutions and Simulations -- 3 Dependence Modeling: A Bivariate Case -- 4 Calibration with Liquidity Data -- 4.1 Dependencies Between Liquidity, Credit, and Market Risk -- 4.2 Marginal Distributions of SHPs -- 5 Conclusions -- References -- Regulatory Developments in Risk Management: Restoring Confidence in Internal Models -- 1 Introduction -- 2 Loss of Confidence in Internal Models---How Did It Happen? -- 2.1 An Example from the First Years of the Crisis -- 2.2 Divergence of Model Results -- 3 Alternatives to Internal Models -- 3.1 Overview -- 3.2 The Leverage Ratio -- 3.3 Regulatory Standardised Approaches -- 4 Ways of Restoring Confidence -- 4.1 Overview -- 4.2 Reducing the Variation in Model Results Through Standardisation -- 4.3 Enhancing Transparency -- 4.4 Highlighting the Positive Developments as a Result of the Trading Book Review -- 4.5 Strengthening the Use Test Concept -- 4.6 A Comprehensive Approach to Model Validation -- 4.7 Quantification and Capitalisation of Model Risk -- 4.8 Voluntary Commitment by Banks to a Code of ``Model Ethics'' -- 4.9 Other Approaches -- 5 Conclusion -- References -- Model Risk in Incomplete Markets with Jumps -- 1 Introduction -- 2 Losses from Hedged Positions -- 2.1 Market and Model Setup -- 2.2 Loss Process -- 2.3 Loss Distribution -- 3 Measures of Model Risk -- 3.1 Value-at-Risk and Expected Shortfall -- 3.2 Axioms for Measures of Model Risk -- 4 Hedge Differences -- 5 Application to Energy Markets -- References.

Part II Financial Engineering -- Bid-Ask Spread for Exotic Options under Conic Finance -- 1 Introduction -- 2 Exotic Bid-Ask Spread -- 3 Conclusion -- References -- Derivative Pricing under the Possibility of Long Memory in the supOU Stochastic Volatility Model -- 1 Introduction -- 2 A Review of the supOU Stochastic Volatility Model -- 3 Martingale Conditions -- 4 Fourier Pricing in the supOU Stochastic Volatility Model -- 4.1 A Review on Fourier Pricing -- 4.2 The Characteristic Function -- 4.3 Regularity of the Moment Generating Function -- 5 Examples -- 5.1 Concrete Specifications -- 5.2 Calibration and an Illustrative Example -- References -- A Two-Sided BNS Model for Multicurrency FX Markets -- 1 Introduction -- 2 The Two-Sided Barndorff--Nielsen--Shephard Model Class -- 3 A Tractable Multivariate Extension of the Two-Sided Γ-OU-BNS Model -- 4 Modeling Two FX Rates with a Bivariate Two-Sided Γ-OU-BNS Model -- 4.1 The Dependence Structure of the Lévy Drivers -- 4.2 Implicitly Defined Models -- 5 Application: Calibration to FX Rates and Pricing of Bivariate FX Derivatives -- 5.1 Data -- 5.2 Model Setup -- 5.3 Calibration -- 6 Conclusion and Outlook -- References -- Modeling the Price of Natural Gas with Temperature and Oil Price as Exogenous Factors -- 1 Introduction -- 2 A Review of the Model by Stoll and Wiebauer (2010) -- 3 The Oil Price Dependence of Gas Prices -- 4 Model Calibration with Temperature and Oil Price -- 4.1 Oil Price Model -- 4.2 Temperature Model -- 4.3 The Residual Stochastic Process -- 5 Option Valuation by Least Squares Monte Carlo Including Exogenous Components -- 5.1 Extensions of Least Squares Monte Carlo Algorithm Including Exogenous Components -- 5.2 Influence of Exogenous Components on Valuation Results -- 6 Conclusion -- References -- Copula-Specific Credit Portfolio Modeling -- 1 Introduction.

2 Copulas Under Consideration -- 3 A Comparison Between CreditRisk+ and CreditMetrics -- 3.1 Preliminary Notes and General Remarks -- 3.2 Theoretical Background -- 4 Results on Estimated Copulas and Risk Figures -- 4.1 Portfolio and Model Calibration -- 4.2 Parametrization of Marginal Distributions -- 4.3 Estimation of Copulas -- 4.4 Effect of the Copula on the Risk Figures and the Tail of the Loss Distribution -- 5 Summary -- References -- Implied Recovery Rates---Auctions and Models -- 1 Introduction -- 2 CDS Settlement: Credit Auction -- 2.1 Initial Biding Period -- 2.2 Dutch Auction -- 2.3 Summary of the Auction Procedure -- 3 Examples of Implied Recovery Models -- 3.1 Cox--Ingersoll--Ross Type Reduced-Form Model -- 3.2 Pure Recovery Model -- 4 Conclusion and Outlook -- References -- Upside and Downside Risk Exposures of Currency Carry Trades via Tail Dependence -- 1 Currency Carry Trade and Uncovered Interest Rate Parity -- 2 Interpreting Tail Dependence as Financial Risk Exposure in Carry Trade Portfolios -- 3 Generalised Archimedean Copula Models for Currency Exchange Rate Baskets -- 4 Currency Basket Model Estimations via Inference Function for the Margins -- 4.1 Stage 1: Fitting the Marginal Distributions via MLE -- 4.2 Stage 2: Fitting the Mixture Copula via MLE -- 5 Exchange Rate Multivariate Data Description and Currency Portfolio Construction -- 6 Results and Discussion -- 6.1 Tail Dependence Results -- 6.2 Pairwise Decomposition of Basket Tail Dependence -- 6.3 Understanding the Tail Exposure Associated with the Carry Trade and Its Role in the UIP Puzzle -- 7 Conclusion -- References -- Part III Insurance Riskand Asset Management -- Participating Life Insurance Contracts under Risk Based Solvency Frameworks: How to Increase Capital Efficiency by Product Design -- 1 Introduction -- 2 Considered Products.

2.1 The Traditional Product -- 2.2 Alternative Products -- 3 Stochastic Modeling and Analyzed Key Figures -- 3.1 The Financial Market Model -- 3.2 The Asset-Liability Model -- 3.3 Key Drivers for Capital Efficiency -- 4 Results -- 4.1 Assumptions -- 4.2 Comparison of Product Designs -- 4.3 Sensitivity Analyses -- 4.4 Reduction in the Level of Guarantee -- 5 Conclusion and Outlook -- References -- Reducing Surrender Incentives Through Fee Structure in Variable Annuities -- 1 Introduction -- 2 Assumptions and Model -- 2.1 Variable Annuity -- 2.2 Benefits -- 3 Valuation of the Surrender Option -- 3.1 Notation and Optimal Surrender Decision -- 3.2 Theoretical Result on Optimal Surrender Behavior -- 3.3 Valuation of the Surrender Option Using PDEs -- 4 Numerical Example -- 4.1 Numerical Results -- 5 Concluding Remarks -- References -- A Variational Approach for Mean-Variance-Optimal Deterministic Consumption and Investment -- 1 Introduction -- 2 The Mean-Variance-Optimal Deterministic Consumption and Investment Problem -- 3 Existence of Optimal Deterministic Control Functions -- 4 A Pontryagin Maximum Principle -- 5 Generalized Gradients for the Objective -- 6 Numerical Optimization by a Gradient Ascent Method -- 7 Numerical Example -- References -- Risk Control in Asset Management: Motives and Concepts -- 1 Introduction -- 2 Risk Management for Active Portfolios -- 2.1 Factor Structure and Portfolio Risk -- 2.2 Allocation to Active and Passive Funds -- 3 Dealing with Investors Downside-Risk Aversion -- 3.1 Portfolio Insurance -- 3.2 Popular Portfolio Insurance Strategies -- 3.3 Performance Comparison -- 3.4 Other Risks -- 4 Parameter Uncertainty and Model Uncertainty -- 4.1 Parameter Uncertainty -- 4.2 Model Uncertainty -- 5 Conclusion -- References -- Worst-Case Scenario Portfolio Optimization Given the Probability of a Crash -- 1 Introduction.

1.1 Alternative Ansatz of Korn and Wilmott -- 1.2 Literature Review -- 2 Setup of the Model -- 3 Optimal Portfolios Given the Probability of a Crash -- 4 The q-quantile Crash Hedging Strategy -- 5 Examples -- 5.1 Uniformly Distributed Crash Sizes -- 5.2 Conditional Exponential Distributed Crash Sizes -- 5.3 Conditional Exponential Distributed Crash Sizes with Exponential Distributed Crash Times -- 6 Deterministic Portfolio Strategies -- 7 Conclusion -- References -- Improving Optimal Terminal Value Replicating Portfolios -- 1 Introduction -- 2 The Mathematical Setup -- 3 The Theory of Replicating Portfolios -- 3.1 Cash-Flow Matching -- 3.2 Discounted Terminal Value Matching -- 4 Equivalence of Cash-Flow Matching and Discounted Terminal Value Matching -- 5 Example -- 6 Conclusion -- References -- Part IV Computational Methodsfor Risk Management -- Risk and Computation -- 1 Computational Risk -- 1.1 Efficiency of Algorithms -- 1.2 Risk of an Algorithm -- 1.3 Eliminate the Risk -- 1.4 Effort -- 1.5 Example -- 2 Assessing Structural Risk -- 2.1 Simplest Attractor -- 2.2 Mean-Field Models -- 2.3 Artificial Example -- 2.4 Structure in Phase Spaces -- 2.5 Risk Index -- 2.6 Example -- 2.7 Summary -- References -- Extreme Value Importance Sampling for Rare Event Risk Measurement -- 1 Introduction -- 2 The One-Dimensional Case -- 3 Examples -- 3.1 Example 1: Simulation Estimators of Quantiles and TailVar for the Normal Distribution -- 3.2 Example 2: Simulating a Portfolio Credit Risk Model -- 4 Conclusion -- References -- A Note on the Numerical Evaluation of the Hartman--Watson Density and Distribution Function -- 1 Introduction -- 2 Occurrence of the Hartman--Watson Law -- 3 Straightforward Implementation Based on Formula (1) -- 4 Evaluation via Gaver--Stehfest Laplace Inversion.

5 Evaluation via a Complex Laplace Inversion Method for the Bondesson Class.