Paper: Estabilidad financiera y riesgo de cola

Tail risks and contract design from a financial stability perspective

The wider theme of this conference is about what we have learned from the recent crisis. There have been  many lessons. Some are not new but just a re-learning of old lore: ‘banks need to hold adequate capital’; ‘real-estate prices can fall dramatically’; ‘financial institutions need to avoid excessive risk taking’. The authorities are pursuing a long list of regulatory initiatives to address the externalities arising from risks in banks and markets, including Dodd-Frank in the US, the European Market Infrastructure Regulation (EMIR) in Europe, the Independent Commission on Banking (ICB) in the United Kingdom and the various Basel capital and liquidity rules internationally. And the Financial Stability Board has taken on a role in co-ordinating much of the other international effort. Academic research also has a large part to play in this process, in both identifying the issues and proposing or evaluating policy responses.

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Paper: #in Merton Model

Marking systemic portfolio risk with the Merton model

The downside risk of a portfolio of assets is generally substantially higher than the downside risk of its components. In times of crisis, when assets tend to have high correlation, the understanding of this difference can be crucial in managing the systemic risk of a portfolio.
In this article, Alex Langnau and Daniel Cangemi generalise Merton’s option formula in the presence of jumps to the multi-asset case. The methodology provides a new way to mark and risk-manage the  systemic risk of portfolios in a systematic way.

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A esta lectura, le sumaria este paper del 2006.

Paper: Hedging dinamico, análisis empírico

An Empirical Analysis of Dynamic Multiscale Hedging using Wavelet Decomposition

Abstract

This paper investigates the hedging effectiveness of a dynamic moving window OLS hedging model, formed using wavelet decomposed time-series. The wavelet transform is applied to calculate the appropriate dynamic minimum-variance hedge ratio for various hedging horizons for a number of assets. The effectiveness of the dynamic multiscale hedging strategy is then tested, both in- and out-of-sample, using standard variance reduction and expanded to include a downside risk metric, the time horizon dependent Value-at-Risk. Measured using variance reduction, the effectiveness converges to one at longer scales, while a measure of VaR reduction indicates a portion of residual risk remains at all scales. Analysis of the hedge portfolio distributions indicate that this unhedged tail risk is related to excess portfolio kurtosis found at all scales.

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