The financial crisis at the end of last decade has called for a comprehensive liquidity risk management framework. The challenge not only lies in finding appropriate liquidity risk measures but more importantly how to apply these measures to implement a risk based liquidity management. A core...

In this paper we describe methods of decomposing risk into subcomponents such as contributing instruments, subportfolios or underlying risk factors e.g., equity, foreign exchange, economy-wide systematic and interest rate risk factors. The Euler allocation principle for allocation of instrument...

Risk aggregation is the roll-up of low-level risks or sub-risks to higher levels. Risk management for banks or insurance institutions involves risk measurement and risk control at the individual risk level, including market risk, credit risk, and operational risks and also the aggregated risk of...

The management of a liquid asset portfolio that can be used to generate counterbalancing capacity in liquidity distress is quickly emerging as a core function in banks. The new Basel III liquidity risk regulation underscores the importance in banks managing a liquidity contingency buffer. The...

Using stock data that covers the period from 6th April 2001 to 17th June 2009, including data for the recent crisis period, we perform Value at Risk risk model validation by backtesting the performance of VaR models in predicting future losses of a portfolio of stocks, futures and options. The...

The recent incremental risk to the Basel market risk requires banks to estimate, separately, the default and migration risk of their trading portfolios that are exposed to credit risk. The regulation requires the total regulatory charges for trading books to be computed as the sum of the market...