Frontmatter -- Advance Praise for Reverse Stress Testing in Banking -- Acknowledgements -- Foreword -- Contents -- Part I: Fundamentals of Reverse Stress Testing -- 1 Reverse Stress Testing: A Versatile Thinking Tool -- 2 Reverse Stress Testing in Banks -- 3 Reverse Stress Testing: An Overview...

We present a new structural model for single name equity and credit derivatives which we also correlate across reference names to produce a model for bespoke synthetic CDOs. The model captures volatility and outlook risk along with correlation risk for small and for large moves separately. We...

The ongoing controversy about whether or not the FVA and KVA should be an adjustment to fair valuation originates from the attempt to shoehorn metrics quantifying market incompleteness into the traditional valuation paradigm based on complete markets. After reviewing the concept of fair...

Implementations of the Standard Initial Margin Model (SIMM) and the Sensitivity Based Approach (SBA) in the Fundamental Review of the Trading Book (FRTB), both call for the calculation of sensitivities with respect to a standardised set of risk factors. Since standard factors are generally...

Clearing members face substantial costs for capital as they post Initial Margin and are required to contribute to the Default Fund of the Central Counterparty Clearing House (CCP). In this paper, we discuss how these costs can be priced and passed on to clients. A transfer pricing policy entails...

The industry is currently seeking to evolve collateral models based on Value-at-Risk to include Wrong-Way-Risk (WWR) add-ons. A parallel trend is to require risk managers to possess Reverse Stress Testing (RST) tools to identify extreme but plausible scenarios and hedge them pro-actively. Use...

We recently introduced the FVA/FDA accounting framework for funding costs, aiming to provide an accounting method that reasonably balances the, often conflicting, concerns of accountants, regulators, traders, and financial economists. While introduction of FVA/FDA accounting does not lead to...

It is a widely recognized fact that risk-reversals play a central role in the pricing of derivatives in foreign exchange markets. It is also known that the values of risk-reversals vary stochastically with time. In this paper we introduce a stochastic volatility model with jumps and local...