Interaction between market and credit risk: Focus on the endogeneity of aggregate risk

As shown in the recent BCBS papers market and credit risks could reinforce each other in certain circumstances, meaning the sum of the parts might be less than an estimate of risk that takes into account the interactions between the two. Market risk factors have an ambiguous impact on the firms' repayment conditions because depreciation of domestic currency for instance favors exporters and harms importers. Within the task of a ‘top-down’ aggregation of market and credit risks this contribution presents a general framework to economic capital measurement and active portfolio management splitting exogenous risk factor influence throw different channels. The approach implies an exploiting of banks information about the clients' trade and cash flows related to global economic activity. The way to single out exposures to counterparties belonging to the same pattern of behavioural reactions to the market factors are considered as the bedrock of Factor endogenous behaviour aggregation (FEBA) approach.integrated analysis of market and credit risk, risk management, endogenous behaviour, concentration risk.

Modeling risk in a dynamically changing world: from association to causation

The current crisis causes numerous economic uncertainties, such as a break-up of the European currency union, and a Greek exit from the euro area to boost the competitiveness by means of devaluation of national currency. When a factor such as exchange rate is expected to have a significant effect on the borrowers’ creditworthiness or a shift in risk regime may have occurred, risk management models based on backward-looking statistical methods are inadequate. Unlike the other approaches to risk modeling, the discussed approach for dynamic risk modeling doesn't ignore causation in favor of correlation and thus it is far more proactive. In contrast to existing risk models, FX rate is considered as a causal factor, which induces a negative correlation among default realizations and reveals ex ante dangerous risk concentrations with the clear economic and behavioral content

Modeling risk in a dynamically changing world: from association to causation

The current crisis causes numerous economic uncertainties, such as a break-up of the European currency union, and a Greek exit from the euro area to boost the competitiveness by means of devaluation of national currency. When a factor such as exchange rate is expected to have a significant effect on the borrowers’ creditworthiness or a shift in risk regime may have occurred, risk management models based on backward-looking statistical methods are inadequate. Unlike the other approaches to risk modeling, the discussed approach for dynamic risk modeling doesn't ignore causation in favor of correlation and thus it is far more proactive. In contrast to existing risk models, FX rate is considered as a causal factor, which induces a negative correlation among default realizations and reveals ex ante dangerous risk concentrations with the clear economic and behavioral content

Interaction between market and credit risk: Focus on the endogeneity of aggregate risk

As shown in the recent BCBS papers market and credit risks could reinforce each other in certain circumstances, meaning the sum of the parts might be less than an estimate of risk that takes into account the interactions between the two. Market risk factors have an ambiguous impact on the firms' repayment conditions because depreciation of domestic currency for instance favors exporters and harms importers. Within the task of a ‘top-down’ aggregation of market and credit risks this contribution presents a general framework to economic capital measurement and active portfolio management splitting exogenous risk factor influence throw different channels. The approach implies an exploiting of banks information about the clients' trade and cash flows related to global economic activity. The way to single out exposures to counterparties belonging to the same pattern of behavioural reactions to the market factors are considered as the bedrock of Factor endogenous behaviour aggregation (FEBA) approach

Business cycle effects on portfolio credit risk: A simple FX Adjustment for a factor model

The recent economic crisis on the demand side of the economy affects the trends and volatilities of the exchange rates as well as the operating conditions of borrowers in emerging market economies. But the exchange rate depreciation creates both winners and losers. With a weaker exchange rate, exporters and net holders of foreign assets will benefit, and vice verse, those relying on import and net debtors in foreign currency will be hurt. This paper presents a simple FX adjustment framework within Factor Endogenous Behaviour Aggregation (FEBA) approach* based on the decomposition of the competitiveness factor into components with meaningful behaviour content and subsequent collapsing into the Adjustment Index. The setup, while being simple, nicely captures non-linear and non-symmetric nature of the FX risk impact on bank’s credit portfolio and could be very useful for modeling credit risk. *The approach was set up in “Interaction between market and credit risk: Focus on the endogeneity of aggregate risk” and mentioned in Roubini Global Economic Digest as “Advance in Credit Risk Management”

Bridging the Risk Management Gap: Adopting the Factor Endogenous Behaviour Aggregation (FEBA) Approach Beyond Banking

While the banking sector has long been at the forefront of risk management practices, other service industries often lag behind. This disparity is particularly evident in sectors where value-oriented management is crucial for maintaining competitiveness. This article focuses on the development and application of the Factor Endogenous Behaviour Aggregation (FEBA) approach in service industries such as healthcare and health resorts. In these sectors, risk management is typically handled on an ad hoc basis due to the absence of stringent regulatory requirements. Understanding and managing customer loyalty is crucial for sustained profitability and growth. In this context, the SOL (Satisfaction Outcome Loyalty) Solution, proposed by Sokolov (2015), emerges as a pivotal tool for quantifying various risks within the Service Profit Chain. The SOL Solution provides a structured approach to quantify risks associated with employee performance, customer satisfaction, and loyalty. By assigning numerical values to these risks, companies can better understand their impact on profitability. This quantification allows businesses to prioritize actions that will have the most significant positive impact on customer loyalty and profitability. The tool also enables predictive analysis, helping businesses foresee potential risks and opportunities by analyzing trends and patterns. *The approach was set up in “Interaction between market and credit risk: Focus on the endogeneity of aggregate risk” and mentioned in Roubini Global Economic Digest as “Advance in Credit Risk Management”

DECISION-SUPPORT SYSTEM FOR WOOD HARVESTING PLANNING IN RUSSIA

Abstract: Extraction of wood by cut-to-length harvesting method (CTL) is becoming a common practice in Russia. Logging companies are faced a large number of options for CTL planning, but they have limited knowledge of the potential in CTL logistics. Objective is to develop a decision support system (DSS) for CTL analyzing at a company level. DSS provides the comprehensive view on the benefits and limitations of different CTL options for making sound short and long term decisions. DSS has been constructed in MapInfo environment using C++ for coding/simulation. The system generates delivery plans, which reduce the CTL costs and rationalize the usage of machinery fleet

The Implementation of Energy-Saving Lighting Systems for Poultry Houses

The provision of lighting in poultry shelters is an energy-intensive process in poultry farming, due to a lack of sunlight in closed facilities. Lighting plays an important role in the majority of organism biorhythms and it clocks the processes of vital activities of the birds. Lighting directly influences productivity, growth and sexual maturation of birds. A determining factor for the lifetime of an LED is the crystal heating temperature during its operation. It may be assumed that the LED lifetime is largely independent of the variation in the current passing through the LED (within the limits of its design values). The research objective was to conduct laboratory testing to compare the electricity consumption between the existing and a newly developed lighting system for poultry house no. 19 of the Kuchinsky Poultry Breeding Plant. In order to conduct the laboratory testing, the authors developed lighting fixtures consisting of sealed plastic bodies with an LED-carrying PCB inside. The testing continued for 113 days. The new system consumed 662 kWh, while the previous system consumed 783 kWh. Energy savings through the testing period amounted to 15%. During the testing, the new equipment was reliable; no failures of LED fixtures were recorded. Keywords: LED lighting, energy conservation, poultry farming, microclimat