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

Non-relativistic Extended Gravity and its applications across different astrophysical scales

Using dimensional analysis techniques we present an extension of Newton's gravitational theory built under the assumption that Milgrom's acceleration constant is a fundamental quantity of nature. The gravitational force converges to Newton's gravity and to a MOND-like description in two different mass and length regimes. It is shown that a modification on the force sector (and not in the dynamical one as MOND does) is more convenient and can reproduce and predict different phenomena usually ascribed to dark matter at the non-relativistic level.Comment: 4 pages, 2 figures. To appear in the proceedings of the 2011 Spanish Relativity Meeting (ERE2011) held in Madrid, Spai

Off-shell effects in the relativistic mean field model and their role in CC (anti)neutrino scattering at MiniBooNE kinematics

The relativistic mean field (RMF) model is used to describe nucleons in the nucleus and thereby to evaluate the effects of having dynamically off-shell spinors. Compared with free, on-shell nucleons as employed in some other models, within the RMF nucleons are described by relativistic spinors with strongly enhanced lower components. In this work it is seen that for MiniBooNE kinematics, neutrino charged-current quasielastic cross sections show some sensitivity to these off-shell effects, while for the antineutrino-nucleus case the total cross sections are seen to be essentially independent of the enhancement of the lower components. As was found to be the case when comparing the RMF results with the neutrino-nucleus data, the present impulse approximation predictions within the RMF also fall short of the MiniBooNE antineutrino-nucleus data.Comment: 19 pages, 7 figures, submitted to Physics Letters

Spontaneously appearing vector vortex beams in vertical-cavity surface-emitting lasers with feedback

[Abstract unavailable