A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
Proposes a new method for determining LGD discount rates based on cost of capital.
SHARC explains machine learning risk models for regulatory capital, linking outputs to scenarios.
Credit (CVA), Debit (DVA) and Funding Valuation Adjustments (FVA) are now familiar valuation adjustments made to the value of a portfolio of derivatives to account for credit risks and funding costs. However, recent changes in the regulatory regime and the increases in regulatory capital requirements has led many banks…
Study shows how capital constraints can lead to systemic crises in financial systems.
Study examines how business units can benefit from group cohesion under regulatory constraints.
Regulations impose idiosyncratic capital and funding costs for holding derivatives. Capital requirements are costly because derivatives desks are risky businesses; funding is costly in part because regulations increase the minimum funding tenor. Idiosyncratic costs mean no single measure makes derivatives martingales f…
This paper improves operational risk modeling by selecting better loss severity distributions.
This letter assesses model risk in credit capital requirements and finds substantial tail risk.
Dynamic model considers private asset markets' complexities.
The largest US banks are required by regulatory mandate to estimate the operational risk capital they must hold using an Advanced Measurement Approach (AMA) as defined by the Basel II/III Accords. Most use the Loss Distribution Approach (LDA) which defines the aggregate loss distribution as the convolution of a frequen…
Study uses LLMs to simplify financial regulation interpretation.
This paper examines if CTE risk measure aligns with profit-maximizing risk capital allocations.
Facing the FRTB, banks need to allocate their capital to each business units or risk positions to evaluate the capital efficiency of their strategies. This paper proposes two computationally efficient allocation methods which are weighted according to liquidity horizon. Both methods provide more stable and less negativ…
Study optimizes insurance liability cash flows with regulatory capital requirements.
A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for capital charges are numerically compared to the current proposals by the Basel Commit…
Simple method calculates WWR for regulatory and accounting purposes.
Optimizes bank capital structure under Basel III constraints, simplifying complex dynamics.
The Basel II internal ratings-based (IRB) approach to capital adequacy for credit risk plays an important role in protecting the Australian banking sector against insolvency. We outline the mathematical foundations of regulatory capital for credit risk, and extend the model specification of the IRB approach to a more g…
This study examines the execution phase of corporate share buy-backs, highlighting inefficiencies and costs.
Paper proposes a new GPR-HS framework for accurate VCV estimation in global equity indices.
Value-at-Risk is a flawed substitute for non-ruin capital, leading to misleading financial standards.
This study examines how risky investments affect insurance capital valuation.
Framework for realistic insurance liability valuation.
Any solvency regime for financial institutions should be aligned with the fundamental objectives of regulation: protecting liability holders and securing the stability of the financial system. The first objective leads to consider surplus-invariant capital adequacy tests, i.e. tests that do not depend on the surplus of…
Within the Own Risk and Solvency Assessment framework, the Solvency II directive introduces the need for insurance undertakings to have efficient tools enabling the companies to assess the continuous compliance with regulatory solvency requirements. Because of the great operational complexity resulting from each comple…
Even in the simple one-factor credit portfolio model that underlies the Basel II regulatory capital rules coming into force in 2007, the exact contributions to credit value-at-risk can only be calculated with Monte-Carlo simulation or with approximation algorithms that often involve numerical integration. As this may r…
Study finds significant price declines and capital reallocation from centralized to decentralized exchanges after FTX collapse.
New risk measure improves creditor protection in financial regulation.
The aim of this paper is to define the market-consistent multi-period value of an insurance liability cash flow in discrete time subject to repeated capital requirements, and explore its properties. In line with current regulatory frameworks, the approach presented is based on a hypothetical transfer of the original li…
The management of operational risk in the banking industry has undergone significant changes over the last decade due to substantial changes in operational risk environment. Globalization, deregulation, the use of complex financial products and changes in information technology have resulted in exposure to new risks ve…
The financial crisis showed the importance of measuring, allocating and regulating systemic risk. Recently, the systemic risk measures that can be decomposed into an aggregation function and a scalar measure of risk, received a lot of attention. In this framework, capital allocations are added after aggregation and can…
The dependency structure of credit risk parameters is a key driver for capital consumption and receives regulatory and scientific attention. The impact of parameter imperfections on the quality of expected loss (EL) in the sense of a fair, unbiased estimate of risk expenses however is barely covered. So far there are n…
Introduces factor risk measures to assess risk relative to multiple factors.
The banking systems that deal with risk management depend on underlying risk measures. Following the Basel II accord, there are two separate methods by which banks may determine their capital requirement. The Value at Risk measure plays an important role in computing the capital for both approaches. In this paper we an…
The theory of acceptance sets and their associated risk measures plays a key role in the design of capital adequacy tests. The objective of this paper is to investigate, in the context of bounded financial positions, the class of surplus-invariant acceptance sets. These are characterized by the fact that acceptability …
Financial institutions are currently required to meet more stringent capital requirements than they were before the recent financial crisis; in particular, the capital requirement for a large bank's trading book under the Basel 2.5 Accord more than doubles that under the Basel II Accord. The significant increase in cap…
Threadneedle is a multi-agent simulation framework, based on a full double entry book keeping implementation of the banking system's fundamental transactions. It is designed to serve as an experimental test bed for economic simulations that can explore the banking system's influence on the macro-economy under varying a…
Digital currencies and cryptocurrencies have hesitantly started to penetrate the investors, and the next step will be the regulatory risk management framework. We examine the Value-at-Risk and Expected Shortfall properties for the major digital currencies, Bitcoin, Ethereum, Litecoin, and Ripple. The methodology used i…
Study assesses the impact of Basel III reforms on Bangladeshi banks.
The quantification of diversification benefits due to risk aggregation plays a prominent role in the (regulatory) capital management of large firms within the financial industry. However, the complexity of today's risk landscape makes a quantifiable reduction of risk concentration a challenging task. In the present pap…
We set the context for capital approximation within the framework of the Basel II / III regulatory capital accords. This is particularly topical as the Basel III accord is shortly due to take effect. In this regard, we provide a summary of the role of capital adequacy in the new accord, highlighting along the way the s…
To quantify the operational risk capital charge under the current regulatory framework for banking supervision, referred to as Basel II, many banks adopt the Loss Distribution Approach. There are many modeling issues that should be resolved to use the approach in practice. In this paper we review the quantitative metho…
On March 4th 2016 the Basel Committee on Banking Supervision published a consultative document where a new methodology, called the Standardized Measurement Approach (SMA), is introduced for computing Operational Risk regulatory capital for banks. In this note, the behavior of the SMA is studied under a variety of hypot…
This study assesses how share capital affects financial growth of non-financial firms listed at NSE.
Systemic risk refers to the risk that the financial system is susceptible to failures due to the characteristics of the system itself. The tremendous cost of systemic risk requires the design and implementation of tools for the efficient macroprudential regulation of financial institutions. The current paper proposes a…
The aim of this paper is to introduce a synthetic ALM model that catches the main specificity of life insurance contracts. First, it keeps track of both market and book values to apply the regulatory profit sharing rule. Second, it introduces a determination of the crediting rate to policyholders that is close to the p…
Study identifies a Strategic Gap in market efficiency due to AI-driven timing and complexity in disclosure.
This research develops a new framework to measure AI investment returns considering both gains and risks.