Risks, Volume 7, Issue 4

This paper proposes a new method to model loss given default (LGD) for IFRS 9 purposes. We develop two models for the purposes of this paper—LGD1 and LGD2. The LGD1 model is applied to the non-default (performing) accounts and its empirical val...

We develop valuation and risk techniques for the future benefits of a retiree who participates in the American Social Security program based on their chosen date of retirement, the term structure of interest rates, and forecasted life expectancy. The...

The aim of this work is to assess systemic risk of Tunisian listed banks. The goal is to identify the institutions that contribute the most to systemic risk and that are most exposed to it. We use the CoVaR that considered the systemic risk as the va...

This paper considers the Brownian perturbed Cramér–Lundberg risk model with a dividends barrier. We study various types of Padé approximations and Laguerre expansions to compute or approximate the scale function that is necessary...

In this paper, we study a stochastic control problem faced by an insurance company allowed to pay out dividends and make capital injections. As in (Løkka and Zervos (2008); Lindensjö and Lindskog (2019)), for a Brownian motion risk proces...

A new Bornhuetter–Ferguson method is suggested herein. This is a variant of the traditional chain ladder method. The actuary can adjust the relative ultimates using externally estimated relative ultimates. These correspond to linear constraints...

We study the jump behaviour in the sovereign risks of major oil-exporting countries and examine whether it is affected by jumps in the price and volatility of crude oil. Data used are daily from 14 February 2011, to 31 July 2019. We detect the presen...

The Segerdahl-Tichy Process, characterized by exponential claims and state dependent drift, has drawn a considerable amount of interest, due to its economic interest (it is the simplest risk process which takes into account the effect of interest rat...

This article is concerned with the study of the tail correlation among equity indices by means of dynamic copula functions. The main idea is to consider the impact of the use of copula functions in the accuracy of the model’s parameters and in...

In the mandatory health insurance market in Switzerland, a range of insurers offer policies that differ in characteristics like premium and service level while benefits are the same and regulated by law. In this paper, we give an overview of the mark...

In modern market conditions, customers who purchase banking products require a high level of service. In particular, they require continuous real-time service with the ability to instantly “switch” between service channels. The article an...

In this paper, we apply machine learning to forecast the conditional variance of long-term stock returns measured in excess of different benchmarks, considering the short- and long-term interest rate, the earnings-by-price ratio, and the inflation ra...

The purpose of this paper is to evaluate and estimate market risk for the ten major industries in Vietnam. The focus of the empirical analysis is on the energy sector, which has been designated as one of the four key industries, together with service...

In this paper, we solve the problem of mid price movements arising in high-frequency and algorithmic trading using real data. Namely, we introduce different new types of General Compound Hawkes Processes (GCHPDO, GCHP2SDO, GCHPnSDO) and find their di...

The study of connectedness is key to assess spillover effects and identify lead-lag relationships among market exchanges trading the same asset. By means of an extension of Diebold and Yilmaz (2012) econometric connectedness measures, we examined the...

The misestimation of rating transition probabilities may lead banks to lend money incoherently with borrowers’ default trajectory, causing both a deterioration in asset quality and higher system distress. Applying a Mover-Stayer model to determ...

This paper investigates option valuation when the underlying market suffers from illiquidity of price impact. Using option data, I infer trading activities and price impacts on the buy side and the sell side in the stock market from option prices acr...

The aggregation of individual risks into total risk using a weighting variable multiplied by two ratio variables representing incidence and intensity is an important task for risk professionals. For example, expected loss (EL) of a loan is the produc...

The purpose of this study is to examine the volatility-timing performance of Singapore-based funds under the Central Provident Fund (CPF) Investment Scheme and non-CPF linked funds by taking into account the currency risk effect on internationally ma...

First, we give a closed-form formula for first passage time of a reflected Brownian motion with drift. This corrects a formula by Perry et al. (2004). Second, we show that the maximum before a fixed drawdown is exponentially distributed for any drawd...

In this paper, we study a generalised CIR process with externally-exciting and self-exciting jumps, and focus on the distributional properties and applications of this process and its aggregated process. The aim of the paper is to introduce a more ge...

We consider the Sparre Andersen risk process with interclaim times that belong to the class of distributions with rational Laplace transform. We construct error bounds for the ruin probability based on the Pollaczek–Khintchine formula, and deve...

We present an approach to individual claims reserving and claim watching in general insurance based on classification and regression trees (CART). We propose a compound model consisting of a frequency section, for the prediction of events concerning...

Global investors’ investment in local currency bonds, especially Korea Treasury Bonds, has increased significantly since the mid-2000s, and their influence on bonds and financial markets has grown consistently. In this paper, we investigate glo...

Since the 2008–2009 financial crisis, banks have introduced a family of X-valuation adjustments (XVAs) to quantify the cost of counterparty risk and of its capital and funding implications. XVAs represent a switch of paradigm in derivative mana...

In this paper, a new heavy-tailed distribution, the mixture Pareto-loggamma distribution, derived through an exponential transformation of the generalized Lindley distribution is introduced. The resulting model is expressed as a convex sum of the cla...