One innovation defined in the new market risk rules by the Fundamental Review of the Trading Book (FRTB) is the Non-Modellable Risk Factor (NMRF) framework. This new concept introduces a methodology to differentiate between modellable and non-modellable risk factors in the Internal Models...

This paper seeks to establish both direct connections and similarities between the Bayesian network approach and stochastic factor modelling in quantitative risk management. The discussion covers comparison between Bayesian networks as used for financial stress testing and portfolio management...

In this paper we develop a new form of agent-based model for limit order books based on heterogeneous trading agents, whose motivations are liquidity driven. These agents are abstractions of real market participants, expressed in a stochastic model framework. We develop an efficient way to...

This paper examines stochastic or 'value based' generational accounting as a method to assess the intergenerational redistributive impact of pension reform. The analysis is applied to three policy changes to the regulation of Dutch occupational pensions during the years 2012 and 2013 that mark...

There are several pricing and risk model applications where the assumption of a deterministic LIBOR-OIS basis can lead to severe mispricing. By modeling such a basis using a jump-diffusion process, we show how stochastic basis can impact the valuation of specific deals such as zero-coupon swaps,...

We introduce a new approach to model the market smile for inflation-linked derivatives by defining the Quadratic Gaussian Year-on-Year inflation model -- the QGY model. We directly define the model in terms of a year-on-year ratio of the inflation index on a discrete tenor structure, which,...

Within the context of risk integration, we introduce in risk measurement stochastic holding period (SHP) models. This is done in order to obtain a 'liquidity-adjusted risk measure' characterized by the absence of a fixed time horizon. The underlying assumption is that - due to changes on market...