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Market- and Book-Based Models of Probability of Default for Developing Macroprudential Policy Tools

Jin, Xisong; Simone, Francisco Nadal de - Central Bank of Luxembourg - 2011

The recent financial crisis raised awareness of the need for a framework for conducting macroprudential policy. Identifying as early as possible and addressing the buildup of endogenous imbalances, exogenous shocks, and contagion from financial markets, market infrastructures, and financial...

Persistent link: https://www.econbiz.de/10009324235

Co-variation des taux de croissance sectoriels au Luxembourg: l?apport des corrélations conditionnelles dynamiques

Rouabah, Abdelaziz - Central Bank of Luxembourg - 2007

Cette analyse emploie le modèle des corrélations conditionnelles dynamiques développées récemment par Engle (2002) pour déterminer le caractère synchrone ou asynchrone des mouvements des taux de croissance de la valeur ajoutée des différents secteurs économiques au Luxembourg. Le...

Persistent link: https://www.econbiz.de/10009276970

Analytic Moments for GARCH Processes

Alexander, Carol; Lazar, Emese; Stanescu, Silvia - Henley Business School, University of Reading - 2010

Conditional returns distributions generated by a GARCH process, which are important for many problems in market risk … moments of GARCH returns distributions in several ways: we consider a general GARCH model – the GJR specification with a … specific GARCH models largely used in practice are recovered as special cases; we derive the limits of these moments as the …

Persistent link: https://www.econbiz.de/10010838036

The (De)merits of Minimum-Variance Hedging: Application to the Crack Spread

Alexander, Carol; Prokopczuk, Marcel; Sumawon, Anannit - Henley Business School, University of Reading - 2012

produced by GARCH-based models are excessive. Therefore we encourage hedgers to use a na ¨ive hedging strategy on the crack … majority of the existing literature, which favours the implementation of GARCH-based hedging strategies. …

Persistent link: https://www.econbiz.de/10010838053

Endogenizing Model Risk to Quantile Estimates

Alexander, Carol; Sarabia, Jose Maria - Henley Business School, University of Reading - 2010

We quantify and endogenize the model risk associated with quantile estimates using a maximum entropy distribution (MED) as benchmark. Moment-based MEDs cannot have heavy tails, however generalized beta generated distributions have attractive properties for popular applications of quantiles....

Persistent link: https://www.econbiz.de/10010838057

Banking Systemic Vulnerabilities: A Tail-risk Dynamic CIMDO Approach

Jin, Xisong; Simone, Francisco Nadal De - Central Bank of Luxembourg - 2013

This study proposes a novel framework which combines marginal probabilities of default estimated from a structural credit risk model with the consistent information multivariate density optimization (CIMDO) methodology of Segoviano, and the generalized dynamic factor model (GDFM) supplemented by...

Persistent link: https://www.econbiz.de/10010631759

An Early-warning and Dynamic Forecasting Framework of Default Probabilities for the Macroprudential Policy Indicators Arsenal

Jin, Xisong; Simone, Francisco Nadal De - Central Bank of Luxembourg - 2012

The estimation of banks? marginal probabilities of default using structural credit risk models can be enriched incorporating macro-financial variables readily available to economic agents. By combining Delianedis and Geske?s model with a Generalized Dynamic Factor Model into a dynamic t-copula...

Persistent link: https://www.econbiz.de/10010826820

Markov Switching GARCH Diffusion

Alexander, Carol; Lazar, Emese - Henley Business School, University of Reading - 2008

GARCH option pricing models have the advantage of a well-established econometric foundation. However, multiple states … need to be introduced as single state GARCH and even Levy processes are unable to explain the term structure of the moments … of financial data. We show that the continuous time version of the Markov switching GARCH(1,1) process is a stochastic …

Persistent link: https://www.econbiz.de/10008542351

American Option Valuation: Implied Calibration of GARCH Pricing-Models

Weber, Michael; Prokopczuk, Marcel - Henley Business School, University of Reading - 2010

This article analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility …

Persistent link: https://www.econbiz.de/10008542373

Model-Based Stress Tests: Linking Stress Tests to VaR for Market Risk

Alexander, Carol; Sheedy, Elizabeth - Henley Business School, University of Reading - 2007

Under the new capital accord stress tests are to be included in market risk regulatory capital calculations. This development necessitates a coherent and objective framework for stress testing portfolios exposed to market risk. Following recent criticism of stress testing methods our tests are...

Persistent link: https://www.econbiz.de/10005558290