Extended-lister
Showing 431 - 440 of 498 entries
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Research Report
Liquidity Risk: Current Research and PracticeThis article presents a survey of current thinking and practice regarding liquidity risk. We place the notion of liquidity risk as understood by risk managers in financial institutions in the broader context of liquidity as understood by treasury managers, institutional investors and traders, and central bankers. The article also presents and discusses critically two widespread approaches to measuring liquidity risk for individual securities, and discusses the problems that arise in...
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Research Report
Examples and Applications of Closed-Form CDO PricingWe describe a model for closed-form CDO pricing based on conditional independence in a onefactor model. We use the model to follow a sample deal over an 18-month period of declining credit quality, and give examples to show how changes in the correlations and spreads of the collateral pool affect individual tranches. We point out implications of our results for risk managers.
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Research Report
Risk Management for Non-Financial CorporationsImportant issues that corporations face in measuring and managing their market risk include long-term horizons, risk reporting in periods, accounting rules, position aging, exposure modeling, and risk against budgeted levels. We describe a risk model that calculates Earnings-at-Risk and Cash-Flows-at-Risk for corporations in a way that addresses these concerns, and work through a detailed example. The market model we use also incorporates mean reversion and calibration to market prices.
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Research Report
Issues in the Pricing of Synthetic CDOsIn this article, we discuss the standard pricing model framework for synthetic CDOs. Though the standard framework is by now well accepted, how the model is implemented precisely and, importantly, how the model is applied, vary across the marketplace. We discuss some of the outstanding implementation and application issues, and propose a number of questions that further research on the model should seek to address.
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Research Report
Fixed Income Risk AttributionWe compare the risk of the active portfolio with that of the benchmark and segment the difference between the two to correspond to decisions made by the manager of the active portfolio. There are three main decisions we consider: interest rate, which encompasses duration, allocation and selection decisions; currency; and credit.
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Research Report
Distribution of Defaults in a Credit BasketPete Benson presents an interesting special case of the standard credit portfolio derivatives pricing model. Closed-form solutions are in short supply for these models, particularly for non-trivial values for correlation. Pete noticed this somewhat surprising result in preparing examples of the model. Once he found the proof, Pete proceeded to challenge a number of the research group members with the problem, and the problem has now become a standard interview question here.
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Research Report
Specific Risk for Long-Term HorizonsWe discuss the extra risk associated with undiversified portfolios, build a model for simulating an undiversified portfolio over a very long time horizon, and test the model empirically. The model incorporates both credit and market risk. The main result is that, for any portfolio, the excess volatility ascribed to underdiversification is proportional, on average, to the Herfindahl index of the portfolio.
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Research Report
Economic capital allocation for credit riskEconomic capital allocation is a distinct problem from the determination of total portfolio capital. VaR or expected shortfall can be used as measures of total capital in the sense of a solvency guarantee or insurance premium. After introducing a set of criteria that a capital allocation scheme should meet, we find that allocation based on expected shortfall contribution is the best overall choice.
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Research Report
Risk attribution for asset managersIn this article we present a risk attribution methodology that segments the total tracking error of a portfolio into allocation and selection components that are consistent with traditional return attribution systems. Our approach applies standard risk statistics (e.g., standard deviation, VaR, and incremental VaR) to the stochastic excess returns vis-à-vis a benchmark attributed to each investment decision.
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Research Report
Financial markets in the aftermath of the terrorist attackThis paper summarizes market events since September 11, 2001 and compares them with stress events of the past few years. The weeks following the terror attack displayed the typical patterns of market crisis behavior. At the same time, the crisis on this occasion was shorter and more muted than in previous stress events that originated in the financial markets. These events underscore again the importance of portfolio diversification.