258 research outputs found

    Principles of Copula Theory Fabrizio Durante and Carlo Sempi CRC Press, 2015, 332 pages, £72.99, hardcover ISBN: 978‐1‐439‐88442‐3

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    Peer Reviewedhttps://deepblue.lib.umich.edu/bitstream/2027.42/139078/1/insr12239_am.pdfhttps://deepblue.lib.umich.edu/bitstream/2027.42/139078/2/insr12239.pd

    Innovations in Quantitative Risk Management

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    Quantitative Finance; Game Theory, Economics, Social and Behav. Sciences; Finance/Investment/Banking; Actuarial Science

    Regulatory Capital Modelling for Credit Risk

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    Abstract. 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 modelling for credit risk, and extend the model specification of the IRB approach to a more general setting than the usual Gaussian case. It rests on the proposition that quantiles of the distribution of conditional expectation of portfolio percentage loss may be substituted for quantiles of the portfolio loss distribution. We present a more compact proof of this proposition under weaker assumptions. The IRB approach implements the so-called asymptotic single risk factor (ASRF) model, an asset value factor model of credit risk. The robustness of the model specification of the IRB approach to a relaxation in model assumptions is evaluated on a portfolio that is representative of the credit exposures of the Australian banking sector. We measure the rate of convergence, in terms of number of obligors, of empirical loss distributions to the asymptotic (infinitely fine-grained) portfolio loss distribution; and we evaluate the sensitivity of credit risk capital to dependence structure as modelled by asset correlations and elliptical copulas. A separate time series analysis takes measurements from the ASRF model of the prevailing state of Australia's economy and the level of capitalisation of its banking sector. These readings find general agreement with macroeconomic indicators, financial statistics and external credit ratings. However, given the range of economic conditions, from mild contraction to moderate expansion, experienced in Australia since the implementation of Basel II, we cannot attest to the validity of the model specification of the IRB approach for its intended purpose of solvency assessment. With the implementation of Basel II preceding the time when the effect of the financial crisis of 2007-09 was most acutely felt, our empirical findings offer a fundamental assessment of the impact of the crisis on the Australian banking sector. Access to internal bank data collected by the prudential regulator distinguishes our research from other empirical studies on the IRB approach and recent crisis

    Dependence modelling of marine environmental variables and resilience assessment of offshore structures operating in harsh environments

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    With increasing global energy demand, energy-related offshore activities continue to increase. As part of this expansion, exploration and operations in harsh ocean environments are becoming more common. Harsh environments are characterized by low temperatures, strong winds, high waves, and ice. These harsher conditions apply increased structural loads and may increase the probability of accidents. Such environmental variables are usually interdependent. Failure to consider these dependencies, when modelling harsh environmental loads, leads to less accurate predictions of design loads and consequently less accurate predictions of offshore structures’ capacity to withstand these loads. This work addresses the dependence issue between environmental variables and seeks to improve predictions of environmental loads and offshore structural capacity. The benefits of considering dependence structures using copula functions are assessed for bivariate and vine-copulas are assessed for multivariate cases of the environmental variables. In each case this is followed by applications to assess offshore structure resilience. Two types of dependence structures are studied: symmetric and asymmetric. Environmental loads are estimated using copula functions to see how significantly the correlation influences the estimation. The copula functions are then applied to assess structural capacity in terms of resilience. A bivariate application case uses copula functions to model two influencing factors that determine the velocity of an iceberg. Results show that the resilience of the offshore structure is mainly dependent on absorptive capacity. Multivariate models are then constructed using Vine Copulas, and a total environmental load is estimated. This multivariate copula model is applied to assess the resilience of an offshore structure subjected to multiple environmental loads. The study concludes that the accuracy of environmental load predictions can be improved using copula functions to model environmental factor dependencies. In addition, the concept of structural resilience provides a better means of considering the overall resistance of a structure subject to harsh and dependent multivariate environmental loads. Applications of the proposed methodologies in this thesis help to develop a robust approach to deal with uncertainties related to dependence structures between marine environmental variables. In addition, this thesis helps to develop safer offshore structures operating in harsh environment by estimating the structure’s capacity in term of resilience in the design stage

    Innovations in Quantitative Risk Management

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    Quantitative Finance; Game Theory, Economics, Social and Behav. Sciences; Finance/Investment/Banking; Actuarial Science
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