Comment on: Kinetic Roughening in Slow Combustion of Paper

We comment on a recent Letter by Maunuksela et al. [Phys. Rev. Lett. 79, 1515 (1997)].Comment: 1 page, 1 figure, http://polymer.bu.edu/~hmakse/Home.htm

What Happened to Risk Management During the 2008-09 Financial Crisis?

When dealing with market risk under the Basel II Accord, variation pays in the form of lower capital requirements and higher profits. Typically, GARCH type models are chosen to forecast Value-at-Risk (VaR) using a single risk model. In this paper we illustrate two useful variations to the standard mechanism for choosing forecasts, namely: (i) combining different forecast models for each period, such as a daily model that forecasts the supremum or infinum value for the VaR; (ii) alternatively, select a single model to forecast VaR, and then modify the daily forecast, depending on the recent history of violations under the Basel II Accord. We illustrate these points using the Standard and Poor’s 500 Composite Index. In many cases we find significant decreases in the capital requirements, while incurring a number of violations that stays within the Basel II Accord limits.risk management;violations;conservative risk strategy;aggressive risk strategy;value-at-risk forecast

GFC-Robust Risk Management Strategies under the Basel Accord

A risk management strategy is proposed as being robust to the Global Financial Crisis (GFC) by selecting a Value-at-Risk (VaR) forecast that combines the forecasts of different VaR models. The robust forecast is based on the median of the point VaR forecasts of a set of conditional volatility models. This risk management strategy is GFC-robust in the sense that maintaining the same risk management strategies before, during and after a financial crisis would lead to comparatively low daily capital charges and violation penalties. The new method is illustrated by using the S&P500 index before, during and after the 2008-09 global financial crisis. We investigate the performance of a variety of single and combined VaR forecasts in terms of daily capital requirements and violation penalties under the Basel II Accord, as well as other criteria. The median VaR risk management strategy is GFC-robust as it provides stable results across different periods relative to other VaR forecasting models. The new strategy based on combined forecasts of single models is straightforward to incorporate into existing computer software packages that are used by banks and other financial institutions.Value-at-Risk (VaR);daily capital charges;optimizing strategy;robust forecasts;violation penalties;global financial crisis;Basel II Accord;aggressive risk management strategy;conservative risk management strategy

A decision rule to minimize daily capital charges in forecasting value-at-risk

Under the Basel II Accord, banks and other Authorized Deposit-taking Institutions (ADIs) have to communicate their daily risk estimates to the monetary authorities at the beginning of the trading day, using a variety of Value-at-Risk (VaR) models to measure risk. Sometimes the risk estimates communicated using these models are too high, thereby leading to large capital requirements and high capital costs. At other times, the risk estimates are too low, leading to excessive violations, so that realised losses are above the estimated risk. In this paper we propose a learning strategy that complements existing methods for calculating VaR and lowers daily capital requirements, while restricting the number of endogenous violations within the Basel II Accord penalty limits. We suggest a decision rule that responds to violations in a discrete and instantaneous manner, while adapting more slowly in periods of no violations. We apply the proposed strategy to Standard & Poor’s 500 Index and show there can be substantial savings in daily capital charges, while restricting the number of violations to within the Basel II penalty limits.value-at-risk;daily capital charges;optimizing strategy;risk forecasts;endogenous violations;frequency of violations

Ising Model on Edge-Dual of Random Networks

We consider Ising model on edge-dual of uncorrelated random networks with arbitrary degree distribution. These networks have a finite clustering in the thermodynamic limit. High and low temperature expansions of Ising model on the edge-dual of random networks are derived. A detailed comparison of the critical behavior of Ising model on scale free random networks and their edge-dual is presented.Comment: 23 pages, 4 figures, 1 tabl

Canonical Transformations in a Higher-Derivative Field Theory

It has been suggested that the chiral symmetry can be implemented only in classical Lagrangians containing higher covariant derivatives of odd order. Contrary to this belief, it is shown that one can construct an exactly soluble two-dimensional higher-derivative fermionic quantum field theory containing only derivatives of even order whose classical Lagrangian exhibits chiral-gauge invariance. The original field solution is expressed in terms of usual Dirac spinors through a canonical transformation, whose generating function allows the determination of the new Hamiltonian. It is emphasized that the original and transformed Hamiltonians are different because the mapping from the old to the new canonical variables depends explicitly on time. The violation of cluster decomposition is discussed and the general Wightman functions satisfying the positive-definiteness condition are obtained.Comment: 12 pages, LaTe

Stretched exponentials and power laws in granular avalanching

We introduce a model for granular avalanching which exhibits both stretched exponential and power law avalanching over its parameter range. Two modes of transport are incorporated, a rolling layer consisting of individual particles and the overdamped, sliding motion of particle clusters. The crossover in behaviour observed in experiments on piles of rice is attributed to a change in the dominant mode of transport. We predict that power law avalanching will be observed whenever surface flow is dominated by clustered motion. Comment: 8 pages, more concise and some points clarified