Long memory (long-term dependence) of volatility counts as one of the ubiquitous stylized facts of financial data. Inspired by the long memory property, multifractal processes have recently been introduced as a new tool for modeling financial time series. In this paper, we propose a parsimonious...

Operational risk management remains a major concern for financial institutions. Indeed, institutions are bound to manage their own funds to hedge this risk. In this paper, we propose an approach to allocate one's own funds based on a combination of historical data and expert opinion using the...

To meet the Basel II regulatory requirements for the Advanced Measurement Approaches, the bank's internal model must include the use of internal data, relevant external data, scenario analysis and factors reflecting the business environment and internal control systems. Quantification of...

Under the new regulation based on Basel solvency framework, known as Basel III and Basel IV, financial institutions must calculate the market risk capital requirements based on the Expected Shortfall (ES) measure, replacing the Value at Risk (VaR) measure. In the financial literature, there are...

This paper presents an extension of the Capital Assets Pricing Model (hereafter CAPM) where various utility functions are applied. Specifically, we propose an overall CAPM beta that accounts for the higher order moments and reflects the investor preferences and attitudes toward risk. We...

This paper proposes some improvements to advanced measurement approach (AMA) to modelling operational losses and applies this approach to US business losses. The AMA involves, among others, modelling a loss severity distribution and estimating its Expected Loss and the 99.9% operational...

The experience of past financial market turmoil suggests that in addition to eroding investor wealth, the severe consequences of rare extreme market events can spillover and impair the broader real economies. In this context, this paper is an evaluation of the methodological and empirical...

A novel approach to inference for a specific region of the predictive distribution is introduced. An important domain of application is accurate prediction of financial risk measures, where the area of interest is the left tail of the predictive density of logreturns. Our proposed approach...