The topics of Economic Capital modelling, reverse stress testing and credit limits are inextricably intertwined as they all focus on exceptional loss events. In this paper, we use the KVA framework in to frame these three topics within a single unified approach. We propose setting credit limits...

Prices in financial markets must move continuously and surprisingly to support their levels with returns. Consequently the function announcing the arrival rate of moves of different sizes becomes the equilibrium object, necessitating a reformulation of risk reward concepts in these terms. It is...

This paper provides a number of relevant guidelines to build a consistent Volatility Smile accounting for the FX market conventions. This consistency is understood as fitting a model which is able to price vanilla options across all possible strikes given the knowledge of a few market...

Equity index collar strategies are often perceived as a way for investors, at little to no cost, to exchange some upside exposure for reduced losses on the downside. That perception may be accurate if one considers only the net dollar cost of the strategy's initial option trades, but it fails to...

This paper proposes a framework that decomposes the market risk into three components: upside, downside, and tail risk. Their risk premiums can be estimated using information from either the index options market or the stock market. The estimated premiums from both markets share two important...

We examine the risk transmission from the COVID-19 to metal (precious and industrial) and energy markets using the BEKK-MGARCH model. The findings reveal the significant and negative volatility transmission from the COVID-19 to gold, palladium, and brent oil markets, suggesting the safe-haven...

Observing first that the daily option surface may be summarized by the level of the spot price and the four parameters of the Sato process based on the variance gamma process, a time series is constructed for this five dimensional set of factors driving the surface of S&P 500 index option...

We investigate the effect of including variance derivatives as calibration and hedging instruments for pricing and hedging exotic structures. This is studied empirically using market data for SPX and VIX derivatives applied in a stochastic volatility jump diffusion model

This paper examines the dimensions of risk in the Nigerian Business environment with the objective of identifying the various types of risks facing the businesses operating in Nigeria. Empirical data for the paper was secondary and collected from the Kaduna branch of the Nigerian Stock Exchange...

We work in the Uncertain Volatility Model setting of Avellaneda, Levy, Paras [1] and Lyons [10] (cf. also [11]). We first look at European options in a market with no interest rate and focus on theextreme case where the volatility has a lower bound but no upper bound. We show that the smallest...