As part of Basel II's incremental risk charge (IRC) methodology, this paper summarizes our extensive investigations of constructing transition probability matrices (TPMs) for unsecuritized credit products in the trading book. The objective is to create monthly or quarterly TPMs with predefined...

As part of Basel II's incremental risk charge (IRC) methodology, this paper summarizes our extensive investigations of constructing transition probability matrices (TPMs) for unsecuritized credit products in the trading book. The objective is to create monthly or quarterly TPMs with predefined...

As part of Basel II's incremental risk charge (IRC) methodology, this paper summarizes our extensive investigations of constructing transition probability matrices (TPMs) for unsecuritized credit products in the trading book. The objective is to create monthly or quarterly TPMs with predefined...

We provide an analytical VaR approach for the credit portfolio with liquidity horizon and the constant level of risk. Given any time horizon, a two period credit portfolio loss model is derived and, at the end of the first period, the portfolio is rebalanced to ensure a constant level risk of...

In this work a trinomial tree representing the Heston model variance process is used to estimate the parameters for the Heston stochastic volatility model using historical daily observations of the asset.The results include estimates for all Heston model parameters as well as an estimated most...

In this paper the ability of a variety of backtesting experiments to identify a model with misspecified volatility is examined. This quantitative testing assumes five years of risk factor observations, considers overlapping and non-overlapping backtest observations with horizons out to a year,...

This paper examines parameter estimation (mean, volatility and correlation) for correlated Brownian processes making use of overlapping return observations.In doing so, we derive the minimum variance unbiased estimators within the space of linear (for the mean) and quadratic (for the variance...

This paper describes a reasonably straightforward methodology for assessing the impact of different correlation stress assumptions in a historical VaR setting. This is accomplished by first introducing continuous empirical distribution functions for the marginal risk factor distributions, and...

In this work the performance of a number of correlation estimators are compared on uniform but asynchronously observed timeseries. Correlation estimates for a sample of main index equity indices: H225, HSI, BSE30, FTSE100, and SPX500, will be examined, contrasting the bias and efficiency of...