Implementing Loss Distribution Approach for Operational Risk

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 methods suggested in literature for implementation of the approach. In particular, the use of the Bayesian inference method that allows to take expert judgement and parameter uncertainty into account, modeling dependence and inclusion of insurance are discussed

Stochastic simulation framework for the Limit Order Book using liquidity motivated agents

In this paper we develop a new form of agent-based model for limit order books based on heterogeneous trading agents, whose motivations are liquidity driven. These agents are abstractions of real market participants, expressed in a stochastic model framework. We develop an efficient way to perform statistical calibration of the model parameters on Level 2 limit order book data from Chi-X, based on a combination of indirect inference and multi-objective optimisation. We then demonstrate how such an agent-based modelling framework can be of use in testing exchange regulations, as well as informing brokerage decisions and other trading based scenarios

Model Calibration in Watershed Hydrology

Hydrologic models use relatively simple mathematical equations to conceptualize and aggregate the complex, spatially distributed, and highly interrelated water, energy, and vegetation processes in a watershed. A consequence of process aggregation is that the model parameters often do not represent directly measurable entities and must, therefore, be estimated using measurements of the system inputs and outputs. During this process, known as model calibration, the parameters are adjusted so that the behavior of the model approximates, as closely and consistently as possible, the observed response of the hydrologic system over some historical period of time. This Chapter reviews the current state-of-the-art of model calibration in watershed hydrology with special emphasis on our own contributions in the last few decades. We discuss the historical background that has led to current perspectives, and review different approaches for manual and automatic single- and multi-objective parameter estimation. In particular, we highlight the recent developments in the calibration of distributed hydrologic models using parameter dimensionality reduction sampling, parameter regularization and parallel computing

Weighted Distance-Based Models for Ranking Data Using the R Package rankdist

rankdist is a recently developed R package which implements various distance-based ranking models. These models capture the occurring probability of rankings based on the distances between them. The package provides a framework for fitting and evaluating finite mixture of distance-based models. This paper also presents a new probability model for ranking data based on a new notion of weighted Kendall distance. The new model is flexible and more interpretable than the existing models. We show that the new model has an analytic form of the probability mass function and the maximum likelihood estimates of the model parameters can be obtained efficiently even for ranking involving a large number of objects