Interpolation of discount factors

This paper deals with the problem of interpolation of discount factors between time buckets. The problem occurs when price and interest rate data of a market segment are assigned to discrete time buckets. A simple criterion is developed in order to identify arbitrage-free robust interpolation methods. Methods closely examined include linear, exponential and weighted exponential interpolation. Weighted exponential interpolation, a method still preferred by some banks and also offered by commercial software vendors, creates several problems and therefore makes simple exponential interpolation a more logical choice. Linear interpolation provides a good approximation of exponential interpolation for a sufficiently dense time grid. --

Deskription und Bewertung strukturierter Produkte unter besonderer Berücksichtigung verschiedener Marktszenarien

Due to a fast market development in volume and innovation on the structured products (certificates) side, critics are finding fault regarding a lack in transparency and comparability. However, certificates can provide characteristics for every market scenario as its explicit strength. The aim of the following working paper is to provide transparency and an analysis in the most common certificates. The analysis consists of a description, valuation and scenario analysis which then leads to a substantial overview and should provide knowledge which certificate can be used in specific market scenarios. --Financial engineering,strukturierte Produkte,Zertifikate,evaluation by duplication,Discountzertifikate,Aktienanleihe,Doppel-Aktienanleihe,Cheapest-to-deliver-Zertifikat,Bonus-Zertifikat,Sprint-Zertifikat,Outperformance-Zertifikat,Reverse Sprint-Zertifikat,Reverse Outperformance-Zertifikat

Risikosteuerung mit Kreditderivaten unter besonderer Berücksichtigung von Credit Default Swaps

Within the last decade, credit risk management of financial institutions has been subject to major changes due to the development of the credit derivatives market. In the past, financial institutions merely had the possibility to manage their credit portfolio by either approving or refusing a credit request. Having made a decision, there was hardly any chance to influence the portfolio at a later stage. Alternative solutions for risk mitigation like selling the obligation (e.g. via an Asset Backed SecurityTransaction) or claiming further collateral were relatively complicated, cost-intensive and of doubtable success primarily due to their dependency on legal requirements and/or negotiation skills. With the emergence of credit derivatives, risk management has received a broad range of possibilities to transfer credit risk easily without affecting the credit relationship. In other words, credit derivatives enable the separation of credit risk from the original obligation and trading of the risk by itself. Therefore, credit portfolios can be managed actively at every stage. --Credit derivatives,credit derivatives market,credit default swap,credit risk transfer,pricing,valuation,default spread,implicit default probability,risk control,risk management,credit portfolio management,banking supervision,Basel II,credit risk mitigation

Modellierung des Kreditrisikos im Einwertpapierfall

The current financial market crisis has impressively demonstrated the importance of an effective credit risk management for financial institutions. At the same time, the use and the valuation of credit derivatives has been widely criticised as a result of the crisis. Over the past decade, credit derivatives emerged as an important part of credit risk management as these offer a broad range of possibilities to reduce credit risk through active credit portfolio management. This has represented a quantum leap in the further development of credit risk management. Credit risk management, without using credit derivatives, no longer seems to be an appropriate alternative. However, correct valuation of these derivatives is still challenging. The crisis has demonstrated that the issue is less about using credit derivatives than about developing valid valuation techniques. A sound understanding of already existing credit pricing models is necessary for such a development. These models are the key focus of this working paper. --Credit risk pricing models,asset-based models,asset-value models,structural models,intensity-based models,reduced-form models,credit derivatives,credit default swap,pricing,valuation,default spread,risk management,credit portfolio management

Modellierung des Kreditrisikos im Portfoliofall

The current financial market crisis has impressively demonstrated the importance of an effective credit risk management for financial institutions. At the same time, the use and the valuation of credit derivatives has been widely criticised as a result of the crisis. Over the past decade, credit derivatives emerged as an important part of credit risk management as these offer a broad range of possibilities to reduce credit risk through active credit portfolio management. This has represented a quantum leap in the further development of credit risk management. Credit risk management without using credit derivatives no longer seems to be an appropriate alternative. However, correct valuation of these derivatives is still challenging. The crisis has demonstrated that the issue is less about using credit derivatives than about developing valid valuation techniques. A sound understanding of already existing credit pricing models is necessary for such a development. These models are the key focus of this working paper. --Credit risk pricing models,asset-based models,asset-value models,structural models,intensity-based models,reduced-form models,credit derivatives,credit default swap,pricing,valuation,default spread,risk management,credit portfolio management

Konvergenz der binomialen Optionspreismodelle gegen das Modell von Black/Scholes/Merton

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Handlungsalternativen einer Genossenschaftsbank im Investmentprozess unter Berücksichtigung der Risikotragfähigkeit

Investment decisions of cooperative banks are very restricted to their risk capacity. A well defined and organised Risk Management Process supports those investment activities and assists to achieve a balanced situation between risk and return. Several ways can be chosen to allocate risk capital. The aim of this allocation is on the one hand to reduce risk as much as necessary to keep in line with self defined risk limits but on the other hand to get the highest possible return under those conditions. In this paper we first of all analyse and identify several risks in a cooperative bank and then quantify and measure for example interest rate risk with a non parametric Value-at-Risk-approach. Secondly we define risk capacity limits and then use a passive strategy to allocate the available risk capital. --Risk management,risk capacity,value-at-risk,investment decision,benchmark,risk capital allocation,present value,bank controlling

Das IRB-Modell des Kreditrisikos im Vergleich zum Modell einer logarithmisch normalverteilten Verlustfunktion

In 2004 the Basel Committee published an extensive revision of the capital charges which creates more risk sensitive capital requirements for banks. The New Accord called International Convergence of Capital Measurement and Capital Standard provides in its first pillar for a finer measurement of credit risk. Banks that have received supervisory approval to use the Internal Ratings-Based (IRB) approach may rely on their own internal estimates of risk components in determining the capital requirement for a given exposure. The IRB approach is based on measures of unexpected losses (UL) and expected losses (EL). The risk-weight functions produce capital requirements for the UL portion are based on a onefactor (Merton) model which relies furthermore on the assumption of an infinite fine-grained credit portfolio (also known as Vasicek-Model). As Moody´s stated in 2000: Empirical tests verified the log normal distribution for granular pools. we compared both models in order to benchmark the IRB approach with an existing and in practice already verified model which obviously uses similar assumptions. We, therefore, compute the capital requirement or Credit Value at Risk for given portfolios in both approaches respectively and contrast the results. --Basel II,Expected Loss,Unexpected Loss,Kreditrisikomodell,logarithmische Normalverteiling,Credit Value at Risk

Modellierung von Zinsstrukturkurven

Being able to model yield curves from observed bond yields is essential in capital markets. Yield curves are required to accurately price financial products as well as to correctly assess the macroeconomic situation of economies. Current models based on the work of Nelson/Siegel et al. apply a yield-based approach. This paper examines if a discount factor based bucketing approach provides more suitable results. Both methods are put to the test using German government bond data ranging from 1999 - 2010. The results reveal that the bucketing model is able to yield slightly more accurate results in general. Furthermore the findings are superior in market situations with a very twisted yield curve compared to the Nelson/Siegel model. The bucketing approach, however, has problems in conditions with very steep hikes at the short end of the yield curve and with markets in which only very few bonds can be observed. --yield curve,zero curve,modeling,bootstrapping,Nelson/Siegel,Svensson,Diebold/Li,bucketing,interpolation

Incentive Fees: erfolgsabhängige Vergütungsmodelle deutscher Publikumsfonds

This paper analyzes the current use of incentive-fee-concepts for mutual funds in Germany. Following an empirical analysis about the relevance of these methods, the different methods of calculation and the influence of different parameters are described. Further on it explains the impacts of possible basis of assessment, the clearing period and the opportunities of carrying back the obtained performance from the investors point of view. --Incentive Fee,Performance Fee