White Papers

Robust Estimation of Loss Models in the Insurance Industry

Comprehensive loss models are important for all financial services firms, but particularly for insurers. Chudamani Poudyal and Vytaras Brazauskas..

The Time Varying Bayesian Beta

Vasicek’s Bayesian approach for estimating security beta has been widely accepted in the financial services industry, but is it too static? Giuseppe..

Rethinking Business Models from the Perspective of ESG

Forward-looking financial institutions are adapting their methodologies to account for environmental, social and governance issues. Enrico Guarnerio..

The Art of Running Model Validation in a Bank

Financial institutions are under increasing regulatory pressure to implement robust model validation. Subrahmanyam Oruganti and Surabhi Kashyap..

Bayesian Backtesting for Counterparty Risk Models

Financial institutions need a conceptually sound and easy-to-implement approach for analyzing model performance. Matthias Arnsdorf and Mante Zelvyte..

Explainable Machine Learning Models of Consumer Credit Risk

In the financial services community, ML models are currently being used for everything from credit underwriting to forecasting to fraud detection and..

Political Risk Management

The COVID-19 pandemic and social unrest have shined a corporate spotlight on political risk. Omari Scott Simmons explains how businesses can use..

Assessing ESG Risks for Businesses in the COVID-19 Era

Business operations, supply chains and economies around the globe have been disrupted by the pandemic. Paul Hirose and T. Markus Funk discuss the..

Illiquidity Risks in Lending Protocols

Where do lending protocols fit in the decentralized finance landscape, and do they suffer from insufficient liquidity? Xiaotong Sun investigates the..

Do Artificial Neural Networks Provide Improved Volatility Forecasts?

Stock market volatility forecasting is an important component of measuring and managing investment risks. Mehmet Sahiner, David G. McMillan and Dimos..

IFRS 9 and Probability of Default

Loss allowances for expected credit losses differ significantly across European banks. The University of Innsbruck’s Matthias Bank and Bernhard Eder..

Climate Risk Regulatory Expectations and Stress Testing

Inspired by the survey results from GARP’s recent Climate Risk Symposium, we investigated regulatory expectations and approaches for stress testing..

Credit Risks of Peer-to-Peer Lending: The Stock Market Effect

How does the performance of a stock exchange impact credit quality, loan defaults and delinquencies in the P2P space? Xin Liu, Xiaoran Ni, Zhigang..

Why Do Bank Boards Have Risk Committees?

Banks reap many benefits from well-functioning risk committees, but reduced risk is not necessarily one of them. René M. Stulz, James G. Tompkins,..

Pricing Extreme Mortality Risk in Volatile Times

COVID-19 has increased the challenge of properly pricing extreme mortality risk. Han Li, Haibo Liu, Qihe Tang, Zhongyi Yuan analyze the latest U.S...

Forecasting Tail Risk Measures for Financial Time Series

Can a financial institution improve its VaR and expected shortfall projections via a risk model that incorporates economic and financial covariates?..

Regulatory and Physical Risks Top List of Climate-Change Concerns

Finance academics, public-sector regulators and policy economists think regulatory risk is the largest short-term hazard of climate change, while..

Modeling and Forecasting the CBOE Volatility Index

Predictions of future price variability are needed to measure the risk of a portfolio and to value financial instruments. Giuseppe Corvasce examines..

Credit Default Swaps and Credit Risk Reallocation

How can investors’ exposure to credit risk be reallocated through credit default swaps? Using granular data on both debt and CDS exposures by French..

The DeFi Paradox: Risks and Opportunities

By reducing the costs and risks of using centralized intermediaries, decentralized finance promises cheaper and more open access to financial..

Disasters, Large Drawdowns and Long-term Asset Management

Long-term investors are often reluctant to invest in assets or strategies that can suffer from big drawdowns. The University of Lausanne’s Eric..

The Black Swan Problem

How financial institutions cope with tail risk is an under-researched issue. Nick Christie, Nicoletta Marinelli and Håkan Jankensgård explain Black..

Predicting VIX with Adaptive Machine Learning

Can the power of machine learning be harnessed to forecast the daily CBOE implied volatility index? Yunfei Bai and Charlie X. Cai answer this..

Quantile Risk-Return Tradeoff

The quantile regressions technique is effective for measuring the performance of stocks, particularly when dissecting the tails of returns. Nektarios..

Liquidity Stress Testing in Asset Management

How can financial institutions model asset liquidity risk? Thierry Roncalli, Amina Cherief, Fatma Karray-Meziou and Margaux Regnault explain the main..

The Potential Impact of ESG on Tail Risk

Environmental, social and governance (ESG) trading activity has become a staple of financial markets, but whether ESG scores convey information..

Risk Management for Emerging Markets: How to Avoid Another Derivatives Crisis

Recent losses reported by financial institutions have not only caused enormous alarm but also fueled debate and confusion about the appropriate use..

Cyberattacks on Small Banks and the Impact on Local Banking Markets

Cyber breaches can cause significant reputational damage at diminutive banks. Fabian Gogolin, Ivan Lim and Francesco Vallascas explore the effects of..

Stock Market Volatility: Friend or Foe

How is portfolio performance impacted by different types of volatility? Michael J. Dempsey, Abey Gunasekarage and Thanh Truong assess the connection..

Machine Learning Predictions of Credit and Equity Risk Premia

The emergence of algorithmic high-frequency trading has given rise to new AI-driven methodologies for predicting credit risk. The University of..

The Effects of the Adoption of IFRS 9

How does this accounting standard impact the predictability of credit losses across European banks? Christophe Lejard, Eric Paget-Blanc and..

Cyclical Patterns of Systemic Risk Metrics: Cross-Country Analysis

What can we learn about liquidity, solvency and mispricing risks through the study of a prolonged financial cycle? The IMF’s Plamen K. Iossifov and..

January 2021 Webcast Q&A: How to Make Climate Scenarios Usable for Financial Firms

Bridging the Gap Between Climate Scenarios and Risk Measurement. Our expert panel shares their views on how to make climate scenarios usable for..

Modeling Extreme Events

What factors should financial institutions consider when forecasting and analyzing rare tail-risk incidents? Bernd Schwaab, Andre Lucas and Xin Zhang..

Asset Pricing with Conditional Illiquidity

During crises like COVID-19, proper measurement and management of liquidity risk is paramount. Giuseppe Corvasce proposes a dynamic model for pricing..

The Energy Transition: Challenges and Opportunities for Risk Managers

As governments and companies commit trillions of dollars to achieve net-zero emissions by midcentury, market risks have never been higher for oil..

Risk Management in China: A Case Study on Equity Pledges

Private enterprises must take a disciplined approach to risk management, particularly as they seek to raise capital. To demonstrate the challenges..

The LIBOR Transition: Alternatives to the Alternatives

Although imperfect, LIBOR has proven to be quite useful in a variety of financial products and applications. DHG’s Jared Forman and Ben Boulris..

A Simple Framework for Predicting Overnight Returns and Illiquidity Changes

How do adverse news announcements impact liquidity on stock and options markets, and can overnight variations from the previous day’s closing price..

Today's Climate Leaders: What Are They Doing Right, and How Can Other Firms Follow?

Firms that are leading the way in climate risk management have done so by embedding this risk into their day-to-day businesses, enhancing their risk..

Climate Risk Symposium Q&A (2020)

Supervisors and Risk Practitioners Answer Questions from GARP's November Climate Risk Symposium. In November GARP presented the 2020 Climate Risk..

IBOR Transition Challenges

What affect will the shift from IBOR to alternative reference rates, like SOFR, have on funds transfer pricing (FTP)? EY India's Subrahmanyam..

Pandemics, Vaccines and Corporate Earnings

Reduced growth rates and significant investments in costly risk mitigation have damaged corporate earnings. Harrison Hong, Jeffrey D. Kubik, Neng..

The COVID-19 Pandemic: Supply Chain Disruption, Wealth Effects and Corporate Responses

In the first quarter of 2020, amid the pandemic, many U.S. firms were unable to relocate their supply chains, leading to lower inventory, sales and..

When Does Portfolio Compression Reduce Systemic Risk?

In the U.S. and Europe, there is a post-trading netting mechanism that can potentially mitigate the risk of events that trigger severe market..

How to Manage the Transition from EONIA to €STR

What will be the consequences of the end-of-2021 financial benchmark shift from the Euro OverNight Index Average (EONIA) to the Euro ShortTerm Rate..

Making CECL Changes Transparent

How can the quarterly changes of Current Expected Credit Loss accounting standard be attributed to underlying risk drivers such as..

The Connection Between Hurricanes and Mortgage Default Risk

Will rising hurricane intensity and frequency lead to an increase in mortgage defaults? Clifford Rossi examines the effects of the projected..

Reshaping the Cybersecurity Landscape

The cyber risk management needs of large financial institutions are changing amid the COVID-19 pandemic and the acceleration of digitization. A joint..

Forecasting Macroeconomic Risk in Real Time: Great and Covid-19 Recessions

In the run-up to the coronavirus pandemic, financial variables provided policymakers with timely warnings about the potential severity of the crisis...

The Buy-Side Impact of COVID-19

Over the past six months, investment managers have contended with unprecedented uncertainty, thanks to increased volatility, repricing of assets and..

Risk, Uncertainty and Leverage

Banks and broker-dealers must understand the connection between various market factors to more effectively project risk and return. Khandokar Istiak..

COVID-19: Return-to-the-Workplace Strategies

What challenges do financial services leaders now face as they consider when, how – and sometimes, if – operations may resume across the world?..

The Impact of Zero and Negative Interest Rates on Investment Decisions

Controversial monetary policy decisions on interest rates have caused friction among economists and politicians, but have they really changed the..

Steadfast, Greedy or Fearful? Strategies for Responding to Extreme Market Volatility

The pandemic has presented a huge challenge for investors who are hungry for better risk-adjusted investment returns. Elm Partners’ James White and..

Model Risk Management During Times of Crisis

The input variables for financial institutions’ models have changed significantly amid the fallout from COVID-19. DHG’s Jared Forman explores the..

Debt De-Risking

Do corporate bond fund managers manipulate portfolio risk in response to competitive pressure? Andreas Schrimpf, Gianpaolo Parise and Jannic Cutura..

Risk Contagion of COVID-19 on the Japanese Stock Market:

The coronavirus now ranks as one of the worst pandemics in history. Nihon University’s Masayasu Kanno applies correlation and network analyses from..

Coronavirus Risks May Substantially Impact a Bank’s Liquidity and Profitability

The COVID-19 crisis continues to unfold, wreaking havoc in financial markets. DHG’s Jared Forman uses market mechanisms and lessons learned from..

Case Study: The Credit Default of China’s Chaori Solar Bond

What factors drove the first credit default in the history of the Chinese bond market, and what lessons have been learned from this event? Dr...

LIBOR Transition: Obstacles and Approaches

To limit potential adverse impacts to the global economy, the shift from LIBOR to an alternative reference rate requires careful consideration. DHG’s..

Staying Safe Online in the New World of COVID-19

How can cybercrime risks be mitigated amid the pandemic? Tarquin Folliss explains the steps financial institutions can take to protect themselves and..

Dynamic Mean-Variance Portfolio Allocations: A New Benchmark

Portfolio allocation models must account for transaction costs, short-selling and leverage constraints, among other factors. Hugues Langlois proposes..

Bitcoin: Safe Haven or Risk Hazard amid COVID-19?

Does Bitcoin offer shelter during periods of market turbulence? Thomas Conlon and Richard McGee examine the cryptocurrency’s performance during the..

Estimating the COVID-19 Cash Crunch

The global pandemic is having a significant effect on liquidity across the globe. Antonio De Vito and Juan-Pedro Gómez stress-test three liquidity..

Tail Risk Measurement in Crypto-Asset Markets

What are the different types of crypto assets, and how do they perform during stressful times? Daniel Felix Ahelegbey, Paolo Giudici and Fatemeh..

COVID-19: Potential Implications for the Banking and Capital Markets Sector

What specific actions should banks take to mitigate the risks of the coronavirus? Deloitte executives ponder 58 relevant questions and offer..

Lessons from the Latest Phase of Initial Margin Regulation

What can financial institutions learn from analyzing Phase 4 of the initial margin requirements? Vivek Agarwal examines the pitfalls firms need to..

5 Hallmarks of an Effective Cybersecurity Program

Cyber events can cause significant economic, operational and reputational damage. John Thackeray outlines the key elements of a comprehensive..

The Future of Integrated Risk Management

Bringing together diverse and dispersed risks under a single risk framework is a key objective for many financial institutions. MetricStream..

Intra-Portfolio Systemic Contagion

Regulatory changes in Europe have spurred banks to adopt new methods for credit risk evaluation. Lucio Biggiero explores the pros and cons of these..

Statistical Mechanics of Price Stabilization and Destabilization in Financial Markets

What’s the best strategy for analyzing volatile price movements? Jack Sarkissian explains imbalances using his own theory of market equilibrium.

Capturing Macroeconomic Tail Risks

Portfolio losses stemming from rare events are challenging to assess. Andrea Carriero, Todd E. Clark and Massimiliano Giuseppe Marcellino explain how..

Building Smarter Models: How to Improve Model Risk Management

Financial institutions can develop, or redevelop, model eco-systems using active intelligent agents embedded in model source code. NYU's Jon R. Hill..

Model Risk Measures: New Proposals on Risk Forecasting

In financial decisions, model risk is an important source of uncertainty. Fernanda Müller and Marcelo Righi explore the best approaches for..

Volatility Term Structures in Commodity Markets

Accurate forecasting in the commodity markets cannot occur without an understanding of volatility term structures. Fabian Hollstein, Marcel..

Value-Added Risk Management

Banks, hedge funds and mutual funds have varying objectives for managing risk. Mohsen Mazaheri explains how risk management can add value to the..

Scenario Design for Macro-Financial Stress Testing

The effectiveness of stress scenarios depends, in part, on their plausibility. Emanuele De Meo outlines an approach for selecting a stress scenario..

Pricing Climate Risk

Which climate risk factors have the greatest effect on variation in global individual stock returns? Glen Gostlow explores how physical and..

Cyber Insurance and Risk Management: A Normative Analysis

Cyber insurance is becoming an essential tool for managing cybersecurity risks. Kai-Lung Hui, Wendy Wan-Yee Hui and Wei Thoo Yue examine how cyber..

Collateralized Debt Networks with Lender Default

The Lehman Brothers' 2008 bankruptcy spread losses to its counterparties even when Lehman was a lender of cash, because collateral for that lending..

The Known Unknowns 2020: Perils and Opportunities

What are the greatest risk management challenges financial institutions will face next year? MetricStream executives explain why operational..

CECL and the Credit Cycle

How would banking lending have been affected if the Current Expected Credit Loss financial reporting standard had been in place before the financial..

Default Recovery Rates and Aggregate Fluctuations

In the US, default recovery rates are highly volatile and procyclical. Giacomo Candian and Mikhail Dmitriev propose a model that explains the..

Portfolio Stress Testing Applied to Commodity Futures

The increased amount of investments in commodity futures over the past decade have prompted calls for more thorough, forward-looking stress tests of..

Distress and Default Contagion in Financial Networks

Existing models do not do an effective job of accounting for the spread of contagion, particularly pre-default. Luitgard A. M. Veraart proposes a new..

5 Emerging GRC Trends

Banks, regulators and advisory bodies all face unique governance, risk and compliance challenges, but there are some trends that cut across..

Tail Risk Targeting

What are the most effective downside risk trading strategies? Lars Rickenberg explores the pros and cons of dynamic trading strategies that target a..

Model Risk in the Era of Deep Learning

Machine-learning models have been introduced to support decision-making at insurance companies. Ronald Richman, Nicolai von Rummell and Mario V...

Operational Resilience: A Better Understanding

Financial institutions are now facing more pressure from regulators to have effective plans for responding to cyber attacks, fraud, natural disasters..

10 Best Practices for Optimizing Regulatory Engagements

What steps can financial institutions take to build credibility with regulators and to ensure that they are meeting compliance requirements? During a..

Learning from Rare Disasters

Financial crises have long-lasting effects. The University of Pennsylvania’s Jessica A. Wachter and Yicheng Zhu use a Bayesian approach to explain..

Forecasting Recovery Rates on NPLs with Machine Learning

What role can disruptive technology play in recovery rates forecasting? Anthony Bellotti, Damiano Brigo, Paolo Gambetti and Frédéric D. Vrins use a..

Credit Rating Agencies and Accounting Fraud Detection

Issuers who commit fraud are subject to negative rating actions from CRAs. Allen Huang, Pepa Kraft and Shiheng Wang examine the circumstances and..

LGD Parameter Estimation for the Retail Mortgage Book

By 2020, European banks are expected to adhere to guidelines the EBA recently published on PD, LGD and the treatment of defaulted exposures. Naval..

Building a Shareholder Value-Focused Integrated Risk Program

How can financial institutions bridge the gap between risk and shareholder value? CXOs from across the industry answered this question and discussed..

Life After LIBOR

The financial services industry is diligently planning for the expected 2022 shift away from the LIBOR benchmark, but the changeover will be far from..

Yield Estimation Techniques

A scarcity of quality data for private debt securities makes yield estimation a significant challenge. Rajesh Khetan, Anand Bhandar and Neha Dandu..

LIBOR Transition

The expected U.S. shift from the London Interbank Offered Rate to the Secured Overnight Financing Rate is complex and controversial. John Thackeray..

CXO Roundtable: Key Takeaways

Integrated risk management, the future of internal audit and cyber risk management were among the important issues discussed in a recent meeting of..

Machine-Learning Models: Applicability to Credit-Risk Evaluation

How can next-generation predictive models be used for credit risk assessment? Cynthia Rudin and Yaron Shaposhnik take an in-depth look.

Non-Performing Loans in European Systemic and Non-Systemic Banks

Globally systemic important banks (GSIBs) typically have huge and diverse loan portfolios, but how do they compare with non-GSIBs with respect to..

A Practical Guide to Harnessing the HAR Volatility Model

The standard heterogeneous autoregressive (HAR) model is a popular benchmark for forecasting return volatility. Adam Clements and Daniel P. A. Preve..

AI and Big Data Regulatory Risks Under Banking and Consumer Financial Laws

Artificial intelligence and big data stand to transform the financial services industry from the inside out. Melanie Brody, Joy Tsai, and Eric T...

Cyber Risk for the Financial Services Sector

Financial institutions now have to contend with the ongoing and significant threat of cyber risk. The ESMA’s Antoine Bouveret analyzes some recent..

The Hitchhiker's Guide to the Risk-Neutral Galaxy

How does the quanto adjustment compare with stock price dynamics under the risk-neutral measure and pricing IR derivatives under the T-forward..

Testing Derivatives Pricing Models under Higher-Order Moment Swaps

Parametric models can be used to price and hedge higher-order moment swaps. Ako Doffou uses three such models to test pricing accuracy and to..

Do Distressed Banks Really Gamble for Resurrection?

What can we learn from the past actions of financially-troubled banks? Are they more interested in resurrection or in reducing leverage and risk?..

Stacked Monte Carlo for Option Pricing

A new learning-driven version of the Monte Carlo algorithm is now available. Antoine Jacquier, Emma Malone and Mugad Oumgari describe the principles..

Chief Risk Officers and Firm Value

What type of impact do chief risk officers really have on the bottom line? Aldy Fernandes da Silva, Vinicius Brunassi Silva, Joelson Oliveira Sampaio..

Geopolitical Risk and Corporate Investment

Financial institutions certainly take geopolitical risks into account when making investment decisions. Ruchith Dissanayake, Vikas Mehrotra and..

Assessing Macroeconomic Tail Risk

Extremely improbable events are difficult to measure. Francesca Loria, Christian Matthes and Donghai Zhang examine the intricacies of economic shocks..

The Central Role of the US Volatility Index in Global Stock Market Uncertainty

What part does the CBOE’s VIX play in spreading fear across worldwide stock markets, and how do volatility swings at non-US stock exchanges impact..

Expected Loan Loss Provisioning: An Empirical Model

IFRS 9 and CECL require that financial institutions provision for expected losses on their loan portfolios. Yao Lu and Valeri V. Nikolaev offer a..

Bayesian Risk Forecasting for Long Horizons

What are the challenges of Bayesian risk forecasting, and how can it be used efficiently? Agnieszka Borowska, Lennart F. Hoogerheide and Siem Jan..

Global Rating Standards: Connecting a Puzzle

How do rating standards in the U.S. and other developed countries measure up against emerging countries? Najah Attig, Hamdi Driss and Sadok El Ghoul..

Measuring Financial Stress Under Disruptive Energy Transition Scenarios

Climate-transition risks warrant close attention from a financial stability perspective. De Nederlandsche Bank’s Robert Vermeulen, Edo Schets,..

GRC 2019: The Known Unknowns

How will governance, risk and compliance roles and responsibilities change in 2019, and what are some of the weak links that enterprises need to..

A Thorough Look at the VIX

Historically, the CBOE's Volatility Index has been prone to both manipulation and inadvertent errors. Joerg Osterrieder, Lars Vetter and Kevin..

Managing Investment Risks

How do modern investment tools stack up with traditional knowledge and practices? Rakesh Swami and Trilok Kumar Jain compare the different types of..

The Role of Non-Performing Loans for Bank Lending Rates

Do loans that are either in default or close to default lead to higher lending rates at banks? Sebastian Bredl explores the impact of NPLs on lending..

Global Risk Management Survey

Financial institutions are reengineering their risk management programs, with a focus on emerging technologies such as robotic process automation...

Financial Hedging and Corporate Investment

What’s the connection between financial derivatives and M&A financing? George Alexandridis, Zhong Chen and Yeqin Zeng explain how financial hedging..

Bitcoin Futures: From Self-Certification to Systemic Risk

How does the self-certification process work, and should the CFTC have stopped the self-certification of bitcoin futures at the CME and the CBOE..

Credit Risk Transfer and De Facto GSE Reform

Through credit risk transfer (CRT) programs run by Fannie Mae and Freddie Mac, private-sector investors have assumed a portion of the credit risk on..

2019 Banking Regulatory Outlook

Now that most post-crisis regulatory reforms are in place, banks are shifting their focus to culture and governance, the challenges of new technology..

A New Method for Determining Government Credit Risk Exposure

There is now an effective methodology for valuing government interventions in capital markets. Brent W. Ambrose and Zhongyi Yuan use the mortgage..

Modeling the Default Risk Charge Using the Intensity Model

The Fundamental Review of the Trading Book proposes to replace the incremental risk charge (IRC) with a default risk charge (DRC). Badreddine Slime..

How Do Regulations Affect Credit Ratings?

In the Chinese banking sector, rating standards loosened significantly between 2015 and 2017. Shida Liu and Hao Wang explain how regulatory revisions..

Capital Allocation Under the FRTB Regime via Marginal Measures

For the allocation of capital charges and risk-weighted assets (RWA) to individual risk factors, financial instruments and/or portfolios, marginal..

Macroeconomic Factors Impacting Bank Risk in the U.S

Macroeconomic dynamics vary from state to state in the U.S. Anirban Naskar and Sukanya Bhattacharya offer an econometric analysis of banking risks in..

How Informative Is High-Frequency Data for Tail Risk Estimation and Forecasting?

Timo Dimitriadis and Roxana Halbleib-Chiriac propose a novel and simple approach to computing daily value-at-risk (VaR) and expected shortfall (ES)..

Volcker Revision: A Toxic Proposal

US regulatory agencies recently proposed significant changes to the Volcker Rule, but will these revisions lead to improved risk management? Kelvin..

Systemic Risks and Spillovers in China's Stock Market

How do risks spread across the stock market in China? Fei Wu, Dayong Zhang and Zhiwei Zhang use a graph theory to explore patterns of risk spillovers..

The Easing of DFAST: An Overview of 2018 Results

What can we learn from the DFAST 2018 stress tests, and how do those results compare to data from previous years? Ramesh Kumar, Kavita Sarma and..

Illuminating a Path Forward on Strategic Risk

What are the strategic risks that are keeping CEOs and board members up at night, and are proactive steps being taken to address these risks? Through..

Evaluating Risk Mitigation Strategies

Before developing an effective strategy for reducing risk, one must first understand a given client’s risk preferences. Harald Lohre, David..

Scenario-Based Risk Evaluation

Risk measures such as expected shortfall and value-at-risk have been prominent in banking regulation and financial risk management. Motivated by..

Real Implications of Corporate Risk Management

What kind of impact does risk management have on firm value, risk and accounting performance? Georges Dionne and Mohamed Mnasri use a new dataset on..

Semiparametric Estimation of a Credit Rating Model

In recent years, the major credit rating agencies (CRAs) have been criticized for their issuer-pay model and overly-favorable ratings. Yixiao Jiang..

Consumer Debt: A 10-Year Look Back

US consumers are better positioned to handle rising rates than they were on the eve of the global financial crisis. However, as SSGA’s Bruce Casper..

Calculating Lifetime Expected Loss for IFRS 9

Provisioning for expected loss over a loan’s lifetime is one of the key requirements of the IFRS 9 accounting standard for financial instruments. As..

A Decade Post-Lehman, Are Banks Safer?

While the profitability of banks has been challenged by increasing regulatory costs and unfavorable market conditions, they are also now better..

A Review of Entity Risk Assessment

Entity risk assessment has become a key component of integrated risk management. Claire Yu compares a traditional ERA approach with an advanced ERA..

Forecasting Expected Shortfall: What is the Best Approach?

When forecasting the market risk of stock portfolios, is a univariate or a multivariate modeling approach more effective? Alain-Philippe Fortin,..

High Frequency Tail Risk

Stock portfolios with higher exposure to tail risks stand a lot to gain, provided that such risks can be assessed properly. Caio Almeida, Kym Ardison..

Credit Risk, Liquidity and Bubbles

For certain risky securities, credit risk can coexist and interact with asset price bubbles and liquidity risk. Robert Jarrow and Philip Protter use..

Forecasting Bitcoin Risk Measures: A Robust Approach

What models can be used to project the volatility and value-at-risk of Bitcoin? Carlos Trucios explores a comprehensive forecasting approach for this..

Tail Risks, Asset Prices and Investment Horizons

Pricing extreme market risks is a difficult challenge. Jozef Barunik and Mat?j Nevrla examine how tail risks are priced in the cross-section of asset..

The Best Choice for Measuring Credit Risk

What is the most effective and most accurate approach for assessing corporate credit risk? Isabel Abinzano , Ana Gonzalez –Urteaga and Luis Muga..

AI and Machine Learning for Risk Management

How are disruptive technologies transforming risk management? Saqib Aziz and Michael Dowling provide an overview of the benefits and limitations of..

The Impact of the Current Expected Credit Loss Standard on the Timing and Comparability of Reserves

CECL is intended to promote proactive credit loss provisioning. The Federal Reserve Bank of New York's Sarah Chae, Robert Sarama, Cindy Vojtech and..

Regulation and Reshuffling in Bank Securities Portfolios

How do banks react to regulatory policy changes? Typically, they reclassify securities to reduce the riskiness of their securities portfolios and to..

Bitcoin Risk Modeling with Blockchain Graphs

Managing FX risk is a huge challenge for Bitcoin cyrptocurrency holders. Cuneyt Akcora, Matthew Francis Dixon, Yulia Gel and Murat Kantarcioglu..

A Triumph of Risk Management Over Psychiatry: Revisions to the Volcker Rule

Comprehensive reform of the Volcker rule is on the horizon, as evidenced by expected changes to the rule that were jointly published, recently, by a..

Modeling Loss Given Default

Regulators in both the US and Europe expect banks to develop a suite of robust, granular PD, LGD and EAD models for stress testing and allowance...

Yield Estimation in Private Debt for a Given Capital Structure

Corporate yield can be determined through the use of different standard methodologies, including the yield buildup method. However, it has always..

Credit Risk Analysis Using Machine and Deep Learning Models

Taking into account the rise of Big Data and disruptive technologies, many banks are now renewing their business models. Peter Martey Addoo,..

Liquidity Risk and the Dynamics of Arbitrage Capital

Peter Kondor and Dimitri Vayanos examine a continuous time-model of liquidity provision that allows hedgers to trade multiple risky assets with..

Managing Equity Risk in 2018

The bull market in US equities has been going strong for nearly nine years, but is certainly still subject to risk. Ryan McGlothlin and James Walton..

Overcoming The Cyber Risk Appetite Challenge

Cyber attacks, and the resulting supervisory pressure and media attention, have placed a lot of heat on financial institutions to upgrade their cyber..

The Post-Crisis Evolution of Banks and Markets

The boundaries between banks and markets have blurred in the decade since the last global economic crisis. Arnoud Boot and Anjan Thakor explore..

Investment Decisions and Falling Cost of Data Analytics

Do risk-averse and financially-constrained investors actually use less data analytics? Justin Keppo, Hong Ming Tan and Chao Zhou examine the..

A Framework for Understanding the Evolution of Financial Institutions

Financial institutions are financed by both investors – who expect an appropriate risk-adjusted return for providing financing and risk bearing – and..

Estimating Portfolio Risk for Tail Risk Protection Strategies

What are the best approaches for limiting the downside risk of an investment? David Happersberger, Harald Lohre and Ingmar Nolte explore various tail..

Machine Learning for Model Development in Market Risk

Machine learning and artificial intelligence have become buzzwords in the global financial services industry. P. Phani Kumar reviews the scope of..

Speeding Up VaR with Smart Monte Carlo

Bloomberg’s Jan Dash and Xinchong Zhang demonstrate how VaR calculation can be expedited by an order of magnitude using a sophisticated Monte Carlo..

The Myth and Reality of Financial Machine Learning

Machine learning applications are now used by some of the most successful hedge funds. Marcos López de Prado separates machine learning fact from..

Wrong-Way-Risk in Tails

Regulations like the credit valuation adjustment (CVA) make the proper assessment of wrong-way-risk (WWR) imperative. The University of Dortmund’s..

Asset Price Bubbles, Market Liquidity and Systemic Risk

What’s the connection between price bubbles, trading constraints and illiquid markets? Cornell University’s Robert Jarrow and Sujan Lamichhane use an..

Collective Risk Models with Hierarchical Archimedean Copulas

What are collective risk models, and what role do they play in the financial services and insurance industries? Hélène Cossette, Etienne Marceau and..

The 10 Reasons Most Machine Learning Funds Fail

The rate of failure in quantitative finance is high. Marcos López de Prado outlines the 10 critical mistakes underlying the failures of quantitative..

Why Has Idiosyncratic Risk Been Historically Low in Recent Years?

Average idiosyncratic risk (IR) is currently at its lowest point in 53 years. Söhnke M. Bartram, Gregory W. Brown and René M. Stulz use macroeconomic..

Diversification of Business Activities and Systemic Risk

Are financial institutions with a range of businesses in a better risk management position than those with a singular focus? Christian Kubitza and..

Why Do Banks Bear Interest Rate Risk?

There are many factors that determine a bank’s exposure to interest rate risk. Deutsche Bundesbank’s Christoph Memmel examines these determinants,..

Measuring Default Risk for a Portfolio of Equities

What impact will new changes proposed by the Basel Committee on Baking Supervision have on probability of default? Matheus Pimentel Rodrigues and..

Capital and Currency-Based Macroprudential Policies

Horacio A. Aguirre and Gaston Luis Repetto use credit registry data from Argentia to evaluate the the impact of capital- and currency-based..

Banks’ Maturity Transformation: Risk, Reward and Policy

What role does a bank's borrowing and lending practices play in determining its net interest margin? The Bank of Italy's Pierluigi Bologna answers..

Banks’ Maturity Transformation: Risk, Reward and Policy

What role does a bank's borrowing and lending practices play in determining its net interest margin? The Bank of Italy's Pierluigi Bologna answers..

Credit Ratings and Credit Default Swaps During the European Sovereign Debt Crisis

CDS spreads can help predict forthcoming credit rating events. The University of Bath’s Utkarsh Katyaayun and Andreas Krause explain the relationship..

Behavioral Modeling for Prepayment of Term Loans

Various banking regulators, including the Basel Committee on Banking Supervision, require banks to factor prepayments for assessment of liquidity..

Enterprise Risk Management Components

What are the key elements and benefits of ERM? John Thackeray offers a comprehensive overview of ERM, and explains how it can be integrated with a..

Conforming CVA and DVA Calculations with Guarantee Valuations

Gordon Goodman takes a detailed look at the history of credit and debt value adjustments, and proposes a unified approach to the measurement of..

Applying an Enterprise Risk Management Framework to Fund Governance

ERM has broad relevance. Masao Matsuda discusses how an ERM framework can be applied to governance of investment funds to maximize investor values..

Managing Mortgage Product Development Risk

In the highly cyclical mortgage banking business, understanding product risks and process quality is critical. Clifford Rossi explains how effective..

Implications of the New Global Accounting Standards for Insurance Contracts

Insurers will soon be on a level footing internationally. Ann Sin-Yee Lee explores how the new global accounting standards will drive insurers to..

Liquidity Risk Management: Recent Trends

Regulatory reform and changes in best practices have significantly altered the liquidity risk market. Sidharth Reddy and Anirban Naskar explore new..

Profitability in the CDS Market

Opinions on the best strategies for credit default swaps certainly vary. Singapore Management University's Hao Cheng and Kian Guan Lim attempt to..

Volcker Rule: Proposed Revisions vs. Potential Reality

The OCC just finished its solicitation of public comments on revising the Volcker Rule, and there is some optimism that the proposed changes will..

Counterparty Credit Risk in IR and FX Swaps

Properly assessing counterparty credit risk is a complicated task. To meet this challenge, Rajesh Khetan and Abhishek Sharma propose two..

Network Structure and Systemic Risk in the European Equity Market

Can corporate news headlines be leveraged to determine what lies ahead in financial markets? Steven Institute of Technology's Germán G. Creamer..

An Application of a Conditional Illiquidity Measure for US Corporate Bond Yields

What does a conditional illiquidity market model look like? Giuseppe Corvasce analyzes illiquidity risk management metrics and proposes the..

Risk-Managed Momentum: The Effect of Leverage Constraints

Investors can take advantage of momentum to improve their performance, but must manage their risk in the process. Federico Nucera explains how..

The Rogue Hall of Fame

Over the past 25 years, large financial institutions have racked up billions of dollars of losses from rogue trades. Kelvin To takes an in-depth look..

US Bank Credit Spreads During the Financial Crisis

Understanding and pricing bank default risk is extremely important. Peter Spencer analyzes the behavior of CDS rates during the financial crisis to..

Credit Scoring vs. Expert Judgment: A Randomized Controlled Trial

Credit information sharing systems can increase the availability of borrower information in developing financial markets. Thomas Gietzen discusses..

Market Implications of Default Prediction

Can default forecasting be improved through a model that applies implied volatility and an implied cost of capital? Colorado State University’s Hong..

Reconciling Default Concepts for Risk Management Analytics

Today, with the various regulatory, accounting and portfolio management exercises required for different credit loss estimates, it is difficult for..

A Practical Guide to Market Risk Model Validations

What are the most common modeling issues in market risk management, and which validation techniques are the most popular? Vilen Abramov, Matt..

Bank Rating Gaps as Proxies for Systemic Risk

Banks receive two types of ratings from major rating agencies: “all-in” and “standalone.” The University of Alberta’s Lu Wang investigates whether or..

Estimating the Physical Probability for Successful Stock Swap Mergers

What is the best approach for appraising the probability of fruitful stock swap mergers and acquisitions? Giuseppe Corvasce explains how this can be..

The New Era of Expected Credit Loss Provisioning

To protect against future crises, regulators like the FASB and the IASB require banks to provision against loans based on expected credit losses...

A Gentle Introduction to Value-at-Risk

What's the best way to measure market risk in financial markets? Laura Ballotta and Gianluca Fusai discuss the concept of VaR and explain its limits.

A Novel Approach to the Quantification of Model Risk for Practitioners

Sophisticated models are in broad use across the financial services industry, but, to comply with evolving regulation, firms must accurately measure..

Rethinking Market Surveillance

The effectiveness of the SEC’s consolidated audit trail relies largely on regulators’ ability to reconstruct market events and accurate time..

How to Make ERM Effective with Limited Resources

Firms that want to make better risk-informed decisions and to protect themselves in the event of a crisis need competent enterprise risk management...

Linkages Between IFRS 9 Impairment And Stress Testing

What's the connection between stress testing and the IFRS 9 international accounting framework for financial instruments? Claire Yu answers explores..

FRTB Regulation: A P3 Framework for Centralized Testing

Complying with the all of the rules of the fundamental review of the trading book is a major IT challenge for financial institutions. Bhuma..

A Stress Testing Framework for Operational Risk Loss Estimation

Financial institutions have been hit hard by rogue trading, cyber attacks and other events related to operational risk. Phani Kumar examines the..

Climate Change Emerges as a Risk for Financial Institutions

A recent WEF report on global risks identified climate change as a significant threat to financial resilience. Mary Schapiro, Didem Nisanci, Stacy..

Collateral Transformation Services: The New Kid on the Block

Financial regulations have ensured that liquidity, confidence and collateral are intertwined – but some market participants still do not have enough..

The Role of Dynamic Conditional Quartic Beta and Capital Markets

DCQB is an alternative methodology that can measure the sensitivity of a risky asset with respect to a market portfolio. Giuseppe Corvasce uses..

Model Data Governance

The OCC's SRC 11-7 guidelines on model risk management have placed a significant emphasis on the quality of the data that banks use to develop risk..

IFRS 9, CECL, BCBS 311: Preparing for Financial Standards around the World

As deadlines loom for new accounting and regulatory frameworks, firms must ensure they have the right management structures and systems in place...

CAT: A Flawed and Controversial Approach to Market Surveillance

The SEC may have to approve the multibillion-dollar Consolidated Audit Trail, because there is no viable alternative. But the CAT's hype is likely to..

The 2016 Systemic Risk Barometer

In a recent DTCC survey, financial institutions indicated that cyber risk is the biggest risk to the global economy. Geopolitical risk (e.g., the..

Defining Entities for Better Risk Assessment

Proper risk assessment is vital to banks, which potentially face huge losses if they do not establish ownership of their exposures. Jill Coppersmith..

Embedded Derivatives

To meet accounting regulations, financial institutions must scan all of their contracts for embedded derivatives. Deepali Ray defines embedded..

Benefits, Barriers, Governance and Controls of Automated Advisory Services

Regulators are having trouble keeping up with “robo-advisors” – automated advisory services that have already made a splash in the US and European..

An Explanation of the Allowance for Loan and Lease Losses Calculation

Banks can estimate credit losses with help from the OCC's so-called allowance for loan and lease losses. Abhik Agrawal explains how to calculate ALLL..

How Persistent are the Effects of Negative Reputation Events?

Negative events can certainly impact a company's reputation. But what are the true short-term and long-term effects of so-called negative reputation..

Uses and Abuses of ARIMA in PPNR Modeling and Risk Management: Why Not to Fear ARIMA

The ARIMA model is widely used in PPNR modeling. However, some banks fear stability issues. Dimitri Bianco discusses the abuses in ARIMA modeling and..

Comprehensive Capital Adequacy Review Challenges Facing Capital Markets Players

What are the latest trends and regulatory developments for CCAR from a capital markets perspective? Accenture’s Joshua Gorrera, Michael Jacobs and..

EIA Review: Trends and Challenges in the Energy Sector

Renewable energy, the future of LNG and greenhouse gas reduction were among the hot topics discussed and debated at this year's Energy Information..

The Capital Planning Process in Focus: Qualitative Assessment Remains the Hurdle for CCAR 2016

How did banks fare in the Fed's stress testing and CCAR programs in 2016? Jared Forman analyzes this year's results and explores the capital planning..

Executive Summary: Legal/Regulatory Risks in Energy Trading and End-User Hedging Programs

The potential impact of several key regulatory changes – including rulings on clearing, position limits and OTC margin requirements – was the focus..

Banks Can Use Technology To Extract More Value From Covenant Structuring

Implementing information systems to capture and monitor loan covenants will improve operational efficiency, but other benefits may prove even more..

Hit-and-Run Competition in the New Oil Market Order

The changes that have reshaped international oil markets have been largely attributed to the shale revolution. Using the framework of the theory of..

The Role of Third-Party Institutions in Biomass Contracting: A Comparative Perspective

Driven in part by the Obama Administration’s Clean Power Plan, new challenges have emerged in the U.S. bioenergy market. Isabel Freitas Peres and Jay..

Caribbean Energy: Macro-Related Challenges

High costs have dampened competitiveness and growth potential in Caribbean energy. IMF executives provide an overview of the obstacles standing in..

FERC v. EPSA and the Path to a Clean Electricity Sector

A recent Supreme Court ruling upheld the FERC’s demand response rule, confirming the regulator’s authority over practices directly affecting..

Risk in Review: Going the Distance

At many companies, the budget for compliance risk is not as large as it should be and risk management strategies are still not seen as a catalyst for..

Forward Premia in Electricity Markets with Fixed and Flexible Retail Rates: Replication and Extension

What methodologies can be used to analyze forward premia in electricity markets? Silvester Van Koten runs both established and new simulations to..

Systemic Risk in Banking Sector: A Practical Approach to Assessment and Control

Preparing for potentially catastrophic, crisis-level events is a big challenge. Farrukh Mirza offers a simple but practical methodology for measuring..

Institutionalizing Countercyclical Investment: A Framework for Long-Term Asset Owners

How do world's largest asset owners respond to portfolio shifts? The IMF's Bradley Jones addresses this important issue and suggests an approach..

Risk Management Principles for Use of Derivatives in Registered Funds

GARP recently responded to an SEC request for comments on its proposed rule on the Use of Derivatives by Registered Investment Companies and Business..

Determining Capital Adequacy for Banks

Driven by CCAR and other regulatory-driven stress testing exercises, banks are now under more pressure than ever to implement well-defined capital..

Model Risk: Implementation Testing Challenges

Models are typically embedded in large, complex information systems. Genpact's PSS Moorthy and Venkata Krishna discuss the obstacles that model..

An Alternative Measure of Illiquidity: Insights on U.S. Treasury Bills, Notes and Bonds

Recent events have demonstrated why it's important for financial institutions to gain a better understanding of liquidity problems. Giuseppe Corvace..

GARP Comments on SEC's Liquidity Risk Proposal

GARP, in consultation with its Buy?Side Risk Managers Forum Swing Pricing Sub Committee, recently responded to an SEC request for comments. The..

Implications of Collateral Settlement Fails: An Industry Perspective on Bilateral OTC Derivatives

New rules for bilateral clearing of OTC derivatives, scheduled to take effect later this year, could exacerbate the problems that cause settlement..

On the Road to Digitalization: A 2016 Global Asset Management and Administration Survey

Buy-side executives see cybercrime as the largest threat to their industry over the next five years, but they're also very concerned about adapting..

Beyond the Flash Crash: Systemic Risk, Reliability and High-Frequency Financial Markets

It is imperative for financial institutions to understand the risk of extreme market moves. Andrew Kumiega, Greg Sterijevski and Ben Van Vliet..

Short-Selling Bans and Bank Stability

How effective were the short-selling bans that were implemented in the U.S. and Europe after recent financial crises? Alessandro Beber, Daniela..

Why Risk is so Hard to Measure

Financial institutions have traditionally used VaR and expected shortfall to analyze risk. But do these standard techniques actually work, and, if..

Top Regulatory Trends for 2016 in Banking

Cyber threats, capital planning and stress testing, model risk management, credit quality concerns and culture and ethics are among the major..

Credit Default Swaps as Indicators of Bank Financial Distress

CDS contracts provide valuable information about the condition of banks. Davide Avino, Thomas Conlon and John Cotter explain why changes in CDS..

"The Prayer," Part 2

In the second of a two-part series, Attilio Meucci examines the 10 steps of advanced risk and portfolio management.

"The Prayer": The 10 Steps of Advanced Risk and Portfolio Management

In the the first of a two-part series, Attilio Meucci explores the path from data analysis to optimal execution across all asset classes and..

Insurance Activities and Systemic Risk

Many different factors – including size and level of diversification – contribute to systemic risk in the insurance industry. Elia Berdin and Matteo..

Predicting Chinese Stock Market Crashes

Are there any models that can accurately forecast the next huge fall of the stock market in China? Sebastien Lleo and William Ziemba examine whether..

How to Value Guarantees

What are financial guarantees? What are their risk benefits, and how can risk control practices be used to help value guarantees? Gordon E. Goodman..

Collateral Risk for Fair Valuation and CCR Capital

To keep up with changes in regulation, financial institutions now must consider non-traditional methods for capturing collateral. Etienne Koehler and..

Volatility Forecasting in Futures Markets: A Statistical and Value-at-Risk Evaluation

Commodity trading advisors use volatility forecasts to help them manage their risks. Theo Athanasiadis examines widely-used volatility estimators for..

Geopolitical Risk: The Butterfly Effect and Black Swans

In our interconnected world, even the smallest action can potentially have a significant international impact. FTI Consulting’s David Wildman breaks..

A State-Dependent Dual Risk Model

In a dual risk model, the premiums are considered as the costs and the claims are regarded as the profits. The surplus can be interpreted as the..

Banks’ Credit-Portfolio Choice and Risk-Based Capital Regulation

The tightening of capital requirements has skewed banks’ portfolios toward higher-risk, higher-earnings assets. Lund University’s Caren Yinxia..

Banks’ Credit-Portfolio Choice and Risk-Based Capital Regulation

The tightening of capital requirements has skewed banks’ portfolios toward higher-risk, higher-earnings assets. Lund University’s Caren Yinxia..

Analyzing Systemic Risk in the Chinese Banking System

Are Chinese banks at greater risk than their banking counterparts in the U.S. and Korea? The University of Groningen’s Qiubin Huang, Jakob De Haan..

The Derivative Effect: How Financial Services Can Make IoT Pay Off

IoT is certainly going to impact the way that financial institutions manage risk over the next five to 10 years. Deloitte’s Jim Eckenrode analyzes..

Vendor Model Validation: Challenges and Proposed Solutions

Validating a vendor model is no easy task, but there is a blueprint for success. PSS Moorthy breaks down best practices for vendor model validators,..

Stress Testing: Putting the Pieces Together to Solve an Increasingly Intricate Puzzle

Under pressure to meet the rigorous demands of regulators, banks must incorporate stress scenarios into everyday practices tied to liquidity..

The Global State of Enterprise Risk

Firms today are facing a wide array of increasing and complex risks, but many small and medium-sized enterprises still do not have effective..

Currency Risk Outlook: 2015

What trends are shaping the global currency risk market? Hedging, economic policy and cross-border trading are among the issues probed in AFEX’s 2015..

Strategic Risk Management in Insurance: Navigating the Rough Waters Ahead

Insurers need to do a better job of recognizing and reacting to strategic risks. In a new report, Deloitte’s Rich Godfrey and Sam Freidman (et al.)..

Achieving Optimal IFRS 9 Compliance

The IASB’s new accounting standard, IFRS 9, will require banks to provide more timely recognition of expected credit losses (ECL). SAS’ Martim Rocha..

Human Capital, Managerial Overconfidence and Corporate Valuation

Determining the true value of a firm is a complex problem. Dr. Richard Ottoo (FRM), a GARP staff member on the FRM program team, uses a valuation..

Volcker Rule: Legitimate Liquidity Concerns or Irrational Market Fears?

Critics contend that the Volcker Rule’s proprietary trading ban will destroy market liquidity. However, Data Boiler Technologies’ Kelvin To argues..

Fundamental Review of the Trading Book: Are You Covered?

The Basel Committee’s so-called FRTB rule, which is scheduled to come into effect in 2017, attempts to address perceived capital deficiencies in the..

Managing FX Exposure for Long-Term Projects

A financial institution’s corporate treasury department is responsible for hedging the foreign exchange risk of long-term projects. GE Capital’s..

Creating Effective Risk Models Using Machine Intelligence

Today’s risk models need to account for far more complexity than can be handled by traditional methods. This is particularly true for challenges like..

Risk Management in Exotic Derivatives Trading: Lessons from the Recent Past

Structured products have a complex risk profile. BNP Paribas’ Jerome Frugier and Chappuis Halder & Co.’s Augustin Beyot explain why these products..

How Low Can House Prices Go? Estimating a Conservative Lower Bound

In this FHFA working paper, Alexander Bogin, Stephen Bruestle and William Doerner explain the depth of housing market downturns at both the national..

How Basel III and CRD IV are Hurting Hedge Funds and Small Banks

Regulatory demands for increased capital and beefed-up leverage ratios have had a negative impact on bank balance sheets. Moreover, they’ve made life..

Operating in the New Normal: Increased Regulation and Heightened Expectations

In areas such as risk culture, incentive compensation, operational risk and risk data and technology, banks have a lot of work to do to meet the..

Important Steps in the Development and Validation of Stress Testing Models

CCAR-compliant stress tests are the last line of defense for financial institutions. Genpact’s Chandrakant Maheshwari offers a step-by-step approach..

The Rise and Fall of OW Bunker, the World’s Largest Marine Fuel Trader

In November 2014, just seven months after a successful IPO, OW Bunker went unexpectedly bankrupt because of alleged “risk management losses” and..

The Rise and Fall of OW Bunker, the World’s Largest Marine Fuel Trader

In November 2014, just seven months after a successful IPO, OW Bunker went unexpectedly bankrupt because of alleged “risk management losses” and..

Dodd-Frank Act Stress Testing for Mid-Size Banks

Data quality, model risk management, governance and policy and implementation are among the areas that mid-size banks need to focus on to comply with..

Tips for Managing Foreign Exchange Risk

Foreign exchange risk can be driven by economic risk or accounting risk – or both. Deepali Ray says it may be prudent to hedge economic risk and..

Strategic Budgeting and Planning: How to Turn Mandatory Finance and Risk Disclosures into Strategic Tools

Financial institutions now face a lot of internal pressure (from the board) and external pressure (from regulators) to forecast the impact of future..

Driving Efficiencies through a Holistic Approach to New Banking Regulations

Compliance cost burdens will only get worse if banks respond to new regulations in tactical, patchwork fashion. Taking a more transformational,..

VaR Exceedances at Large Financial Institutions

Managing Accounting Risk through Hedge Accounting

While derivatives instruments can be used to manage a firm's foreign exchange exposure, they can also lead to accounting problems. One way to..

Empowering Loss Prevention with Strategic Data Analytics

In today's highly competitive business environment, it is very important to identify vulnerabilities before losses occur. PwC explains how companies..

Ensuring Effective Mitigation of Conduct Risk

In the wake of financial scandals and crises, regulators are now more intensely scrutinizing the conduct of banks. Realizing the potential penalties..

Sovereign Risk and the Macroprudential Illusion

Despite increased capital requirements and new, more stringent liquidity rules, exposure to government debt remains a significant source of..

Analyzing the Capital Requirements for High Yield Investments by Banks

How does the new Basel approach for calculating the capital requirement for banks' equity investments in funds compare with Bob Merton's famous..

Risk Oversight of Investment Activity: 12 Pitfalls to Avoid

Developing and supporting an independent, properly resourced and well managed risk oversight function is no easy task for an investment firm. Bob..

The CVA Capital Charge under Basel III's Standardized Approach

Why has counterparty credit risk (CCR)become so important, and what steps must financial institutions take to meet new regulatory requirements for..

Economic Time-Series-Based Risk Models: Challenges and Solutions

Improving the accuracy and trend sensitivity of risk models is no small task. Vikash Kumar Sharma and Animesh Mandal explain a comprehensive approach.

Generating Historically-Based Stress Scenarios

Is there a robust methodology for generating plausible interest-rate shocks? The FHFA's Alexander N. Bogin and William M. Doerner discuss the steps..

Reducing Risk Management's Organizational Drag

Understanding the Credit Risk Profiles of Over-the-Counter Derivative Transactions

OTC derivative transactions carry a huge amount of credit risk. R. Sathis Kumar explores the risks involved for both parties in these deals, and..

Portfolio Stress Testing Methodologies

Regulators like the US Fed, the International Monetary Fund and the Bank for International Settlements are leading the charge to institutionalize..

US Regulatory Outlook: The Beginning of the End

American banks have had to deal with quite a bit of uncertainty because of regulatory delays. However, in 2014, we should finally see the regulatory..

Dodd Frank At 4: Where do we go from here?

July 2013 marked the fourth anniversary of the enactment of the Dodd-Frank Act. Although most studies required to be undertaken by the Act have been..

Building Blocks for BCBS 239 Risk Data Aggregation (RDA) Compliance

Banks need to implement a comprehensive data and reporting framework to meet all of the requirements of Basel III. Dwarika Nath Mishra,..

Operational Risk Information Sensors for Unstructured Data

How to detect, process and manage the operational risk embedded in social media. By Dwarika Nath Mishra and Vijayaraghavan Venkatraman.

A Bayesian Approach for Model Selection

During the recent sovereign debt crisis, the Bayesian composite hedging strategy was particularly effective. How, exactly, can sophisticated..

Deloitte NL Global Model Practice Survey

Models are powerful tools that can be used to assess risk and improve decision making. If managed inappropriately, however, models can increase..

A New Credit Crisis for 2014

From the perspective of credit risk analytics, bigger data, coming from a far greater number of sources, needs to be squeezed into fewer - and more..

Does Active Management Benefit Active Management: An Analysis of the NACUBO-Commonfund Study Data

Active management for endowments is significantly positively related to higher returns net of fees from U.S. equity allocations over the 2006-2013..

Advanced Risk Management

For institutional investors, risk is the fuel that generates portfolio returns. At Commonfund, which manages $25 billion on behalf of nearly 1,400..

Coface Sector Barometer Q2 2014

Economists at credit insurer Coface say North America remains on track, with company results consistently improving and financial strength..

Emerging Risks 2014

Financial volatility, cyber attacks and rapidly-changing regulation are among the risks that are top of mind for risk managers in 2014, according to..

Risk Communication

Effective risk communication between the board of directors and the C-Suite is critical for companies to seize on opportunities in today's uncertain..

Cortisol Shifts Financial Risk Preferences

Many influential models assume that financial risk preferences form a stable trait. Is this assumption justified? The research results in this paper..

Simple Simulation of Non-Normal Distribution

This whitepaper presents, without going into the mathematical rigor, a simple step-by-step approach to developing a non-normal distribution using..

Overcoming Insufficient Data for Forecasting Probability of Default

In calculating a reserve for their loan portfolio, financial institutions must allocate enough to cover the expected loss over the next year, due to..

Basel, the Big Picture: Tackling Risk Aggregation & Reporting

When the Basel Committee on Banking Supervision released its "Principles for Effective Risk Data Aggregation and Risk Reporting" in January 2013, the..

Panorama Sector Barometer Winter 2013

Coface's third Panorama asses the risks facing 14 key industrial sectors in Asia, North America and Western Europe.

Eye on the Credit Markets

The worldwide credit markets were impacted by a confluence of factors in 2013, as the global economy continued to slowly regain its footing. Among..

Improve ROE with Better Credit Risk Practices

Many times, the first question companies ask BI software vendors is "can I export the data to a spreadsheet?" But this is the wrong question to ask...

Identifying Illicit Activity Through Financial Transactions

To shield against emerging threats from sources such as rogue states, terrorist groups, organized crime and disaffected internal elements, financial..

Risk-Neutral PDs and Default-Adjusted Cash Flows

In this paper, the author seeks to take some well-known methods of deriving market-implied PDs (risk-neutral PDs) and derive credit-adjusted cash..

Regulatory Reform Glossary

Since the financial crisis, financial institutions have been required to address significant regulatory changes. The new regulatory framework in the..

The Internal Audit Analytics Conundrum

Leading organizations are able to gain significant competitive edge through data. The increasing sophistication of analytics technologies, coupled..

Integrating Stressing of LGD Parameters into Basel AIRB Capital Supervisory Formula

Current Basel minimum capital requirements for credit risk under the Advanced Internal Rating Based Method (AIRB) use both probability of default..

Embedding Risk Data Aggregation and Reporting

This paper considers the 14 Data Principles recently described by the Basel Committee for Banking Supervision (BCBS Regulation 239) and assesses..

Currency Forcasting Using Value at Risk

This whitepaper explores an alternative application of Value at Risk models -- as a measure of forecasting currency over a certain horizon.

Leveraging Risk Analytics

The global financial crisis of 2008 has often been attributed to a failure of risk management. Where the warnings of senior risk managers once went..

Exploring Strategic Risk

Managing risk effectively has always been a touchstone of the most successful companies. But in today's risk-filled business environment, it can be..

Quantitative Approaches to Modeling Sovereign Risk

As sovereign bonds have become an increasingly important part of the global financial system, accounting for roughly one-fifth of financial assets,..

Panorama Sector Barometer

Coface's quarterly sector barometer analyses the situation in fourteen key economic sectors in three of the world's major regions (European Union,..

Model Risk Assessment A Model Doesn't Begin With a Model

The recent expansion of model development from origination to exposure valuation benefits the decision-making process of the management in financial..

Beyond the Horizon

This paper identifies several factors impeding the industry's ability to protect itself from emerging threats, including a rise in cyber attacks that..

Limited Data for Forecasting a Fact of Life for Credit Risk Managers

As the pace of business accelerates, financial institutions struggle to find enough relevant data to forecast risk-related parameters for reserve..

Wall Street in Crisis

A particularly troubling and consistent finding from Labaton Sucharow's second annual survey of the U.S. financial services industry is what the..

Evolution of the OTC Swaps Market

There was much pointing of fingers in the aftermath of the global crash of 2008, as politicians, economists, the media, and the financial industry..

Managing Misconduct During Career Moments

This study from CEB finds that changes in employees' work environment -- dubbed "career moments" -- can disrupt established patterns of workplace..

Estimating Credit Spreads

Credit spreads refer to the difference in interest rates charged by borrowers to cover the default-related risks involved with any loan or set of..

Tenor Adjustments for a Basis Swap

Interest rate swaps (IRS) are powerful tools to transfer the cash flows of assets and liabilities to fixed from floating and vice versa. They are..

Governance for Strengthened Risk Management

In this report, the Institute of International Finance tackles some of the gaps between recommendations to strengthen risk governance practices and..

Art of Algorithmic War

In this market age of dark pools, contorted orders and 'self'-learning machines, the battle not only for alpha but also for simple survival looks..

State of Internal Audit Study

The overwhelming opinion of 1,700 executives participating in PwC's 9th annual State of the Internal Audit Profession Research is that internal audit..

Monitoring Risk While Pursuing High Returns

Understanding the different approaches to measuring credit, and what those techniques allow their users to actually see, is a crucial element in..

Increasing Urgency and Evidence of Opportunity: A Survey of CROs in the Insurance Industry

Insurers have entered a new era of risk, with increased regulatory requirements and clear business justifications for embedding well-thought-out risk..

Wrong-Way Risk

On the heels of a major financial crisis that saw the failure of a global bank and near failure of several others, institutions must be able to..

Creating a Risk Management Culture

How do you create a risk culture that permeates all levels and functions in an organization? These five steps are intended to provide CIOs, CEOs and..

Does Black-Scholes Framework for Option Pricing Use Constant Volatilities and Interest Rates?

Many believe that when using the famous Black-Scholes framework for option pricing, you must assume that the stock volatility and risk free interest..

Dodd-Frank Implementation

Almost two-and-a-half years after the enactment of the Dodd-Frank Act, the various federal agencies charged with implementation have made measurable..

Buyers and Bleeders

Capital requirements are tightening due to the Dodd-Frank Act and Basel III regulations, with the consequence that many banks will require hefty..

The State of the Credit Markets

From widespread economic and political uncertainty to low yields and regulatory reform, a handful of themes are dominated the global credit markets..

CVA Capital Calculation

In response to the global financial crisis and a heightened awareness of counterparty credit risk and CVA, Basel III includes a new capital charge..

The Global Outlook for Crude Oil

Strong crude oil prices are largely discounted by the market, and geopolitical and monetary factors suggest that prices could climb higher. However,..

Managing Counterparty Risk in an Unstable Financial System

In "Managing Counterparty Risk," David Belmont, Chief Risk Officer of Commonfund Group, analyzes MF Global, Peregrine Capital, and other counterparty..

Transition Of Memory (DRAM) Market From Oligopoly to Monopoly

The DRAM market has been competitive and dynamic right from the days of its formation. It has seen transition (in technology & market structure),..

Dodd-Frank at 2

Making the wide-ranging financial reforms in the Dodd-Frank Act a reality requires the work of many federal agencies, either through rulemaking or..

Volatility-Volume Relationship in Energy Futures Markets

This paper investigates the relationship between trading volume and price volatility in the crude oil and natural gas futures markets when using..

Sybase - Counterparty Risk

Counterparty risk has long been a source of concern for risk managers. However, the financial crisis brought new urgency to counterparty risk..

Modeling Electricity Spot Prices -- Combining Mean-Reversion, Spikes and Stochastic Volatility

Starting with the liberalization of electricity trading, this market grew rapidly over the last decade. However, while spot and future markets are..

GDL-SECTRADE

This thought leadership paper examines the impact of the anticipated changes in financial regulation of securities trading in response to the current..

Sybase Capital Markets Guide 2011

With articles and research that focus on technological innovation, business strategy and geographical markets, this guide provides thought leadership..

SAS-AFTERTHESTORM

In March 2009, the Economist Intelligence Unit conducted a global survey to assess how risk management is changing in the world's financial..

SYBASE - COMPLEX EVENT PROCESSING

"Today, everything happens fast. In Capital Markets, real-time analysis of data delivered from multiple sources, at high speed, is key to maximizing..

Evaluating and Managing Energy Portfolios: Overcoming the Challenges

SYBASE-CAPITALMARKETS

For capital markets regulation to achieve its mission of fostering stable markets, enhancing transparency, and limiting market dislocations - despite..

Risk Appetite: Setting and Institutionalizing Enterprise Risk Tolerance

How do financial firms decide how much risk they will take, and how should that appetite be articulated throughout the organization? This IBM..

Risk Stress Testing and Scenario Analysis

This whitepaper tackles issues such as the importance of senior management's attitude toward risk analysis; the actions risk professionals should..

The Impact of Physical Commodity Supply Trends on Financial Market Behavior

Do the market prices of physical commodities reliably reflect their underlying fundamentals, or does financial market behavior sometimes distort the..

Liquidity Risk: Improved Management Strategies and Controlling Exposure

Liquidity risk has been high on the regulatory agenda since the credit crisis of 2007 quickly became a liquidity crisis, as discussed in this..