A g-and-h copula approach to risk measurement in multivariate financial models

We propose and backtest a multivariate Value-at-Risk model for financial returns based on Tukey's g-and-h distribution. This distributional assumption is especially useful if (conditional) asymmetries as well as heavy tails have to be considered and fast random sampling is of importance. To illustrate our methodology, we fit copula GARCH models with g-and-h distributed residuals to three European stock indices and provide results of out-of-sample Value-at-Risk backtests. We find that our g-and-h model outperforms models with less flexible residual distributions and attains similar results as a benchmark model based on Hansen's skewed-t distribution

Tail Risk Hedging and Regime Switching

In this paper, we analyze futures-based hedging strategies which minimize tail risk measured by Value-at-Risk (VaR) and Conditional-Value-at-Risk (CVaR). In par- ticular, we first deduce general characterizations of VaR- and CVaR-minimal hedging policies from results on quantile derivatives. We then derive first-order conditions for tail-risk-minimal hedging in mixture and regime-switching (RS) models. Using cross hedging examples, we show that CVaR-minimal hedging can noticeably deviate from standard minimum-variance hedging if the return data exhibit nonelliptical features. In our examples, we find an increase in hedging amounts if RS models identify a joint crash scenario and we confirm a reduction in tail risk using empirical and EVT-based risk estimators. These results imply that switching from minimum-variance to CVaR- minimal hedging can cut losses during financial crises and reduce capital requirements for institutional investors

VaR- and CVaR-minimal futures Hedging Strategies: An Analytical Approach

Although Value at Risk (VaR) and Conditional Value at Risk (CVaR) have been established as standard techniques in many fields of risk management and portfolio selection, the literature rarely applies these risk measures to futures hedging. The purpose of this paper is to characterize analytically VaR- and CVaR-minimal hedging strategies. We apply results about quantile derivatives to obtain first order conditions that hold under weak assumptions on the underlying return distribution. We then focus on conditionally elliptical return processes, which enables us to derive closed form expressions for these conditions. In the case of hedging with a single futures contract, these expressions can explicitly be solved for (C)VaR-minimal hedge ratios. Hedging strategies based on these results account for the risk caused by the fat tails of return distributions. In a further step, we extend our characterizations of optimal hedging strategies to mixtures of elliptical distributions. This generalization allows capturing distributional asymmetries, which was found to be highly important for tail based risk measurement. Overall, our findings can be used to implement (C)VaR-minimal hedging rules for most econometric models employed in the futures hedging literature, including multivariate GARCH and regime switching models

Comparison of light transmission and reflection techniques to determine concentrations in flow tank experiments

Transmissive and reflective intensity measurements for visual concentration determinations in 2D flow tank experiments were compared and evaluated for their applicability in the study of flow and transport phenomena. A density-dependent heterogeneous flow experiment was conducted and transmission and reflection images of the dyed saltwater plume were analyzed. A single light source and dark curtains forced the light to pass through the porous media only, thus facilitating the transmission measurements. The reflection images delivered a more homogeneous spatial illumination than the transmission images. Major perturbations of the transmission images were lens flare effects and light dispersion within the bead-water-Plexiglas system which smear the front of the plume. Based on the conducted evaluation of transmissive and reflective intensity measurements, the reflection data delivered more reliable intensity values to derive solute concentrations in intermediate scale flow tank experiment

Effects of tectonic structures, salt solution mining, and density-driven groundwater hydraulics on evaporite dissolution (Switzerland)

Subsurface dissolution (subrosion) of evaporites such as halite and gypsum can lead to extensive land subsidence. Recent land subsidences have been surveyed at six separate locations in northwestern Switzerland. The diameters of the affected surface areas range from 100 to 1,500 m, and corresponding subsidence rates reached more than 100 mm/year. Based on a geometrical model, three sites could be outlined where land subsidence can likely be attributed to salt solution mining. The effects of increased hydrostatic gradient due to both groundwater withdrawal and fluid density contrasts were evaluated in more detail for the remaining sites with a series of 2D density-coupled solute-transport simulations along an approximately 1,000-m-long and 150-m-deep 2D cross section. Simulation results indicate that the upconing process of saline groundwater into the main aquifer occurs under different distributions of subsurface parameters and hydraulic boundary conditions. For the presented setup, the simulations also revealed that the most sensitive factor for the dissolution rate is the structure or dip of the halite formation, which leads to an increase of dissolution rate with increasing dip. Due to the increased density of the brine, an intrinsic flow dynamic develops which follows the direction of the di

Quantifizierung und Analyse des Kapitalbedarfs für Marktpreisrisiken

Risikokapital, Risikomodellierung, Marktpreisrisik

Quantifizierung und Analyse des Kapitalbedarfs für Marktpreisrisiken

Risikokapital, Risikomodellierung, Marktpreisrisik

Assessment of the heterogeneity of hydraulic properties in gravelly outwash plains: a regionally scaled sedimentological analysis in the Munich gravel plain, Germany

The favorable overall conditions for the utilization of groundwater in fluvioglacial aquifers are impacted by significant heterogeneity in the hydraulic conductivity, which is related to small-scale facies changes. Knowledge of the spatial distribution of hydraulically relevant hydrofacies types (HF-types), derived by sedimentological analysis, helps to determine the hydraulic conductivity distribution and thus contribute to understanding the hydraulic dynamics in fluvioglacial aquifers. In particular, the HF-type “open framework gravel (OW)”, which occurs with the HF-type “bimodal gravel (BM)” in BM/OW couplings, has an intrinsically high hydraulic conductivity and significantly impacts hydrogeological challenges such as planning excavation-pit drainage or the prognosis of plumes. The present study investigates the properties and spatial occurrence of HF-types in fluvioglacial deposits at regional scale to derive spatial distribution trends of HF-types, by analyzing 12 gravel pits in the Munich gravel plain (southern Germany) as analogues for outwash plains. The results are compared to the reevaluation of 542 pumping tests. Analysis of the HF-types and the pumping test data shows similar small-scale heterogeneities of the hydraulic conductivity, superimposing large-scale trends. High-permeability BM/OW couples and their dependence on recognizable discharge types in the sedimentary deposits explain sharp-bounded small-scale heterogeneities in the hydraulic conductivity distribution from 9.1 × 10−3 to 2.2 × 10−4 m/s. It is also shown that high values of hydraulic conductivity can be interpolated on shorter distance compared to lower values. While the results of the HF-analysis can be transferred to other fluvioglacial settings (e.g. braided rivers), regional trends must be examined with respect to the surrounding topography.Bayerisches Staatsministerium für Umwelt und Verbraucherschutz http://dx.doi.org/10.13039/50110001021