nep-rmg New Economics Papers
on Risk Management
Issue of 2021‒01‒04
twenty-six papers chosen by



  1. Forecasting Value-at-Risk and Expected Shortfall in Large Portfolios: a General Dynamic Factor Approach By Marc Hallin; Carlos Trucíos
  2. Italy; Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis and Stress Testing of the Banking and Corporate Sectors By International Monetary Fund
  3. What share for gold? On the interaction of gold and foreign exchange reserve returns By Omar Zulaica
  4. Denmark; Financial Sector Assessment Program-Technical Note-Financial Stability and Stress Testing of the Banking, Insurance, and Non-financial Corporate Sectors By International Monetary Fund
  5. United States; Financial Sector Assessment Program-Technical Note-Risk Analysis and Stress Testing the Financial Sector By International Monetary Fund
  6. Forecasting expected and unexpected losses By Juselius, Mikael; Tarashev, Nikola
  7. Norway; Financial Sector Assessment Program-Technical Note-Insurance Sector Oversight By International Monetary Fund
  8. Denmark; Financial Sector Assessment Program-Technical Note-Financial Sector Interconnectedness and Contagion Risk Analysis By International Monetary Fund
  9. Kingdom of Lesotho; Technical Assistance Report-Implementation of Basel II By International Monetary Fund
  10. Machine Learning or Econometrics for Credit Scoring: Let’s Get the Best of Both Worlds By Elena Ivona DUMITRESCU; Sullivan HUE; Christophe HURLIN; Sessi TOKPAVI
  11. Norway; Financial System Stability Assessment-Press Release; and Statement by the Executive Director for Norway By International Monetary Fund
  12. Norway; Financial Sector Assessment Program-Technical Note-Banking Regulation and Supervision By International Monetary Fund
  13. Republic of Korea; Financial System Stability Assessment and Press Release for the Republic of Korea By International Monetary Fund
  14. The Impact of Regulatory Stress Tests on Bank Lending and Its Macroeconomic Consequences By Falk Bräuning; Jose Fillat
  15. Adaptative predictability of stock market returns By Lopes Moreira Da Veiga, María Helena; Mao, Xiuping; Casas Villalba, Maria Isabel
  16. Denmark; Financial Sector Assessment Program-Technical Note-Insurance Regulation and Supervision By International Monetary Fund
  17. Italy; Financial Sector Assessment Program-Technical Note-Insurance Sector Regulation and Supervision By International Monetary Fund
  18. Norway; Financial Sector Assessment Program-Technical Note-Systemic Risk Oversight and Macroprudential Policy Framework By International Monetary Fund
  19. United States; Financial Sector Assessment Program-Technical Note-Banking Supervision and Regulation By International Monetary Fund
  20. Denmark; Financial Sector Assessment Program-Technical Note-Banking Regulation and Supervision By International Monetary Fund
  21. Portfolio Similarity and Asset Liquidation in the Insurance Industry By Giulio Girardi; Kathleen W. Hanley; Stanislava Nikolova; Loriana Pelizzon; Mila Getmansky Sherman
  22. The Law of One Price in Equity Volatility Markets By Peter Van Tassel
  23. Options to Strengthen Disaster Risk Financing in Pakistan By World Bank
  24. Italy; Financial Sector Assessment Program-Technical Note-Banking Regulation and Supervision and Bank Governance By International Monetary Fund
  25. United States; Financial Sector Assessment Program-Technical Note-Insurance Supervision and Regulation By International Monetary Fund
  26. Hawkes processes framework with a Gamma density as excitation function: application to natural disasters for insurance By Laurent Lesage; Madalina Deaconu; Antoine Lejay; Jorge Meira; Geoffrey Nichil; Radu State

  1. By: Marc Hallin; Carlos Trucíos
    Abstract: Beyond their importance from a regulatory policy point of view, Value-at-Risk (VaR) and Expected Shortfall (ES) play an important role in risk management, portfolio allocation, capital level requirements, trading systems, and hedging strategies. Unfortunately, due to the curse of dimensionality, their accurate estimation in large portfolios is quite a challenge. To tackle this problem, we propose a filtered historical simulation method in which high-dimensional conditional covariance matrices are estimated via a general dynamic factor model with infinite-dimensional factor space and conditionally heteroscedastic factors. The procedure is applied to a panel with concentration ratio close to one. Back-testing and scoring results indicate that both VaR and ES are accurately estimated under our method, which outperforms alternative approaches available in the literature.
    Keywords: conditional covariance; high-dimensional time series; large panels; risk measures; volatility
    JEL: C10 C32 C53 G17 G32
    Date: 2020–12
    URL: http://d.repec.org/n?u=RePEc:eca:wpaper:2013/315983&r=all
  2. By: International Monetary Fund
    Abstract: The Financial Sector Assessment Program (FSAP) took place against the backdrop of an ongoing recovery of the financial system. Since the global financial crisis (GFC), financial regulation has been substantially enhanced by the implementation of euro area-wide (EA-wide) regulatory and supervisory frameworks. Furthermore, the Italian authorities have implemented important measures that improved governance, facilitated capitalization, raised prudential requirements, and improved asset quality. In response, Italian banks have made substantial progress tackling legacy non-performing loans (NPLs) and improving solvency ratios.
    Keywords: Banking;Commercial banks;Stress testing;Bank deposits;Financial crises;ISCR,CR,credit risk,coverage ratio,hurdle rate,accounts receivable,financial system,fixed income,modified duration
    Date: 2020–08–04
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/238&r=all
  3. By: Omar Zulaica
    Abstract: Almost five decades after the collapse of the Bretton Woods system, gold continues to form an important share of global foreign exchange reserves. This may be because gold has traditionally offered reserve managers many benefits, such as the absence of default risk. This paper explores whether these large investment shares in gold are also justified from a risk-return standpoint, or whether any other explanations have to be brought to bear. To do this, we go beyond the simple application of portfolio optimisation techniques, comprehensively analysing all possible long-only combinations of gold and representative fixed income reserve portfolios. We conclude that the market risk associated with gold is substantial when evaluated against a broad range of criteria, such as mitigating portfolio volatility, tail-risk, the probability of loss, and measures of diversification. This will tend to limit overall allocations. Nonetheless, for portfolios with higher sensitivity to interest rates (duration) and for reserve managers who measure their returns in a non-reserve currency, we find evidence that gold may function as a hedge, making it easier to justify sizeable gold holdings from a purely quantitative perspective.
    JEL: E58 F31 G11 G17
    Date: 2020–11
    URL: http://d.repec.org/n?u=RePEc:bis:biswps:906&r=all
  4. By: International Monetary Fund
    Abstract: The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic. This report, however, includes stability analysis and stress tests under updated illustrative scenarios to quantify the possible implications of the COVID-19 shock on bank solvency. An unusually high degree of caution must be exercised in interpreting the stress tests results and their implications or validity at the current juncture, due to heightened uncertainty around post COVID central projections and downside risks. Financial vulnerabilities were elevated on the eve of the COVID-19 pandemic. Key financial vulnerabilities included high household leverage amid high real estate valuations following a long period of loose financial conditions. There were also signs of risk taking in some sectors, such as commercial real estate (CRE), and in addition, there were downside risks to bank profitability amid the low-interest-rate environment.
    Keywords: Stress testing;Banking;Covered bonds;Liquidity requirements;Insurance companies;ISCR,CR,date of payment,return on equity,cash flow,reinvestment risk,risk capital,short-term debt
    Date: 2020–08–12
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/258&r=all
  5. By: International Monetary Fund
    Abstract: The U.S. financial system is very large, well-diversified, and home to numerous financial institutions which are significant at a global scale. Eight Global Systemically Important Banks (G-SIBs) are incorporated in the U.S., as well as several other large financial institutions, such as asset managers, insurers, and money market funds. Assets of the financial system amounted to about US$100 trillion at end-2019 and accounted for 500 percent of GDP. While the eight G-SIBs dominate the U.S. banking landscape, banking system assets represent only about 22 percent of total financial system assets. The systemic risk assessment (including stress testing) of this FSAP reflect the highly diversified nature of the U.S. financial system and focuses on banks, mutual and money market funds, insurance companies as well as cross-institutional and cross-sectoral linkages and exposures.
    Keywords: Commercial banks;Stress testing;Banking;Insurance companies;Loans;ISCR,CR,financial system,fixed income,sensitivity analysis,credit card,mutual fund,student loan
    Date: 2020–08–10
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/247&r=all
  6. By: Juselius, Mikael; Tarashev, Nikola
    Abstract: Extending a standard credit-risk model illustrates that a single factor can drive both expected losses and the extent to which they may be exceeded in extreme scenarios, ie “unexpected losses.” This leads us to develop a framework for forecasting these losses jointly. In an application to quarterly US data on loan charge-offs from 1985 to 2019, we find that financial-cycle indicators – notably, the debt service ratio and credit-to-GDP gap – deliver reliable real-time forecasts, signalling turning points up to three years in advance. Provisions and capital that reflect such forecasts would help reduce the procyclicality of banks’ loss-absorbing resources.
    JEL: G17 G21 G28
    Date: 2020–12–21
    URL: http://d.repec.org/n?u=RePEc:bof:bofrdp:2020_018&r=all
  7. By: International Monetary Fund
    Abstract: The Norwegian insurance sector is well-capitalized. In recent years, the authorities have taken steps to recapitalize weak insurers and to boost capital for the overall industry. Risk-resilience has been strengthened by stronger retention of profits leading to accumulation of reserves, better risk management, and higher capital in the run-up to the implementation of the Solvency II regulatory regime.
    Keywords: Insurance companies;Insurance;Financial stability assessment;Solvency;Stress testing;ISCR,CR,FSA issues circular,FSA-run stress test,insurance undertaking,risk outlook,inspection program,main focus,nonlife insurance,risk assessment
    Date: 2020–08–12
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/263&r=all
  8. By: International Monetary Fund
    Abstract: The FSAP developed a novel multi-layer contagion model to analyze financial system interconnectedness using a new and comprehensive database. This new infrastructure, based on securities data and newly-released confidential credit register data, plays a pivotal role in the development of an advanced contagion model that distinguishes the transmission of shocks between eight different exposure types or layers (loans, deposits, reverse repos, covered bonds, other debt securities, equities, unlisted shares, and other claims). The exercise focuses on the banking system (banks and MCIs), and on interconnections through the covered bond market, as the cornerstones of the overall financial system. However, it also includes exposures vis-a-vis non-bank financial institutions (insurer, pension and investment funds) and non-financial sectors (households, corporates), both domestically and abroad. The simulation exercise consists of a series of idiosyncratic shocks, where the default of each node is triggered iteratively. The model introduces a repricing channel on traded securities to capture cascade effects arising from market reactions to changes in an entity’s solvency condition.
    Keywords: Covered bonds;Banking;Credit;Securities;Commercial banks;ISCR,CR,covered bond market,mortgage credit institutions,reverse repo,covered bond exposure,securities data
    Date: 2020–08–12
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/256&r=all
  9. By: International Monetary Fund
    Abstract: This mission, a follow up to the earlier mission from IMF AFRITAC South (AFS) conducted in March 2017 (STX Mr. Bernie Egan), was designed to further help the authorities in the implementation of Basel II and select elements of Basel III. The main objectives of the mission were to help the CBL finalize the Draft Guidelines to banks on Pillar 1; assist in the implementation of Pillar 2, with attention paid to the Supervisory Review and Evaluation Process (SREP) and the banks´ Internal Capital Adequacy Assessment Process (ICAAP); and evaluate current disclosure requirements in view of the recent revision of Pillar 3 by the Basel Committee on Banking Supervision (BCBS). The adoption of select elements of Basel III especially those related to definition of capital was discussed.
    Keywords: Banking;Basel II;Basel III;Financial statements;Commercial banks;ISCR,CR,capital,III capital requirement,ICAAP report,ICAAP document,liquidity policy
    Date: 2020–07–22
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/222&r=all
  10. By: Elena Ivona DUMITRESCU; Sullivan HUE; Christophe HURLIN; Sessi TOKPAVI
    Keywords: , Risk management, Credit scoring, Credit scoring, Machine learning, Interpretability
    Date: 2020
    URL: http://d.repec.org/n?u=RePEc:leo:wpaper:2839&r=all
  11. By: International Monetary Fund
    Abstract: Much of the work of the Financial Sector Assessment Program (FSAP) was conducted prior to the COVID-19 pandemic, with the missions ending on February 13, 2020. Given the FSAP’s focus on medium-term challenges and vulnerabilities, however, its findings and recommendations for strengthening policy and institutional frameworks remain pertinent. The report was updated to reflect key developments and policy changes since the mission work was completed. It also includes a risk analysis that quantifies the possible impact of the COVID-19 crisis on bank solvency. Since the previous FSAP in 2015, the Norwegian authorities have taken welcome steps to strengthen the financial system. Regulatory capital requirements for banks were raised and actions were taken to bolster the weak capital position of insurers. Alongside other macroprudential measures, temporary borrower-based measures for residential mortgages were introduced, which seem to have had some moderating impact on segments of the housing market. The resolution framework was also strengthened, with the implementation of the Bank Recovery and Resolution Directive (BRRD) and the designation of Finanstilsynet (FSA) as the resolution authority.
    Keywords: Banking;Financial stability assessment;Anti-money laundering and combating the financing of terrorism (AML/CFT);Stress testing;Liquidity requirements;ISCR,CR,cybersecurity risk oversight,government measure,cybersecurity risk supervision,risk analysis,financial market volatility
    Date: 2020–08–12
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/259&r=all
  12. By: International Monetary Fund
    Abstract: This note presents a targeted review of selected aspects in the regulation and supervision of banks in Norway. The review is carried out as part of the 2020 Norway Financial Sector Assessment Program (FSAP) and the findings and recommendations are based on the regulatory framework in place and the supervisory practices employed at end-October 2019. The note focuses on the powers and responsibilities, independence, and resourcing of Finanstilsynet (FSA); its supervisory approach and enforcement powers and practices; key aspects of the prudential framework; and mechanisms to prevent abuse of financial services.
    Keywords: Financial stability assessment;Banking;Anti-money laundering and combating the financing of terrorism (AML/CFT);Credit risk;Capital adequacy requirements;ISCR,CR,risk assessment,FSA budget,FSA decision,FSA expectation,FSA power
    Date: 2020–08–12
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/260&r=all
  13. By: International Monetary Fund
    Abstract: This paper presents Financial System Stability Assessment (FSSA) with the Republic of Korea. The Korean authorities have continued their efforts at upgrading the prudential, legal, and supervisory framework for the financial sector, and keeping up with international standards and practices in other G20 jurisdictions. The authorities have been strengthening the system with micro and macroprudential measures against vulnerabilities, strengthening the crisis management framework, and upgrading the prudential and legal framework. The FSSA suggests moving toward a more forward-looking monitoring and systemic risk identification mechanism. The reliability of various stress tests could be augmented with advanced methods, system-wide monitoring, and testing the overall leverage related to residential properties, households’ resilience to adverse shocks, and sovereign contingent liabilities. Stronger focus is required on systemic risks emanating from securities market activities that can amplify contagion, including sudden redemption and liquidity pressures in the funds and asset management industry.
    Keywords: Banking;Commercial banks;Financial sector stability;Financial Sector Assessment Program;Housing prices;ISCR,CR,Korea's financial system,bank,holding company
    Date: 2020–04–20
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/120&r=all
  14. By: Falk Bräuning; Jose Fillat
    Abstract: We use an expansive regulatory loan-level data set to analyze how the portfolios of the largest US banks have changed in response to the Dodd-Frank Act Stress Test (DFAST) requirements. We find that the portfolios of the largest banks, which are subject to stress-testing, have become more similar to each other since DFAST was implemented in 2011. We also find that banks with poor stress-test results tend to adjust their portfolios in a way that makes them more similar to the portfolios of banks that performed well in the stress-testing. In general, stress-testing has resulted in more diversified bank portfolios in terms of sectoral and regional composition. However, we also find that all the large banks diversified in a similar way, creating a more concentrated systemic portfolio in the aggregate. Finally, we analyze the effects of stress-testing and portfolio sensitivity to macroeconomic scenarios on credit supply. Our findings indicate that banks that experience worse results in the stress tests cut lending relative to their peers and specifically in loans that are most sensitive to the stress-test scenarios. At the borrower level, firms that rely more on credit from banks with poor stress-test results are not able to substitute lost funding and therefore face a larger reduction in credit and cut back investment. These results highlight a macroprudential effect of stress-testing: Credit growth is curtailed during a credit expansion in those banks holding a portfolio that is more sensitive to stressful scenarios. Hence, these banks are expected to be in a more resilient position at the onset of a downturn.
    Keywords: banking; regulation; stress testing; portfolio similarity; credit supply
    JEL: G20 G21 G28
    Date: 2020–10–01
    URL: http://d.repec.org/n?u=RePEc:fip:fedbwp:89225&r=all
  15. By: Lopes Moreira Da Veiga, María Helena; Mao, Xiuping; Casas Villalba, Maria Isabel
    Abstract: We revisit the stock market return predictability using the variance risk premium and conditional variance as predictors of classical predictive regressions and time-varying coefficient predictive regressions. Also, we propose three new models to forecast the conditional variance and estimate the variance risk premium. Our empirical results show, first, that the flexibility provided by time-varying coefficient regressions often improve the ability of the variance risk premium, the conditional variance, and other control variables to predict stock market returns. Second, the conditional variance and variance risk premium obtained from varying coefficient models perform consistently well at predicting stock market returns. Finally, the time-varying coefficient predictive regressions show that the variance risk premium is a predictor of stock market excess returns before the global financial crisis of 2007, but its predictability decreases in the post global financial crisis period at the 3-month horizon. At the 12-month horizon, both the variance risk premium and conditional variance are predictors of stock excess returns during most of 2000-2015.
    Keywords: Variance Risk Premium; Time-Varying Coefficient Predictive Regressions; Time-Varying Coefficient Har-Type Models; Realized Variance; Predictability; Nonparametric Methods
    JEL: G1 C53 C52 C51 C22
    Date: 2020–12–18
    URL: http://d.repec.org/n?u=RePEc:cte:wsrepe:31648&r=all
  16. By: International Monetary Fund
    Abstract: Denmark’s insurance sector is highly developed with a particularly high penetration and density in the life sector. Traditionally, work-related life insurance and pension savings are offered as a combined package, and life insurance companies dominate the market for mandatory pension schemes for employees. The high penetration explains the overall size of the insurance sector, which exceeds those of peers from other Nordic countries and various other EU member states. Assets managed by the insurance industry amounted to 146 percent of the GDP at end-2018, compared to 72 percent for the EU average.
    Keywords: Insurance;Insurance companies;Solvency;Pension spending;Insurance supervision;ISCR,CR,risk assessment,business intelligence tool,insurance undertaking,DFSA plan,DFSA data,DFSA staff,DFSA supervision,insurance sector,insurance supervisor
    Date: 2020–08–12
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/252&r=all
  17. By: International Monetary Fund
    Abstract: This technical note (TN) provides an update and an assessment of the supervisory framework and practices for the Italian insurance sector since the last assessment concluded in 2013. The mission conducted a target review focusing on the implementation of Solvency II, the financial resilience of insurers, the effectiveness of supervision, and previously identified weaknesses without a full assessment of Italy’s observance with the International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICPs). Implementation of the European Union (EU) Solvency II Directive in 2016 has significantly strengthened regulation and supervision since the last FSAP, introducing risk-based capital standards, comprehensive insurance group supervision and new requirements on governance, risk management and controls. The supervision of intermediaries has also been strengthened in line with the EU Insurance Distribution Directive in 2018.
    Keywords: Insurance companies;Insurance;Solvency;Stress testing;Macroprudential analysis;ISCR,CR,Solvency II,insurance sector,IVASS statute,sanction power,IVASS authority,IVASS data,IVASS exercise,IVASS sensitivity analysis,market share,risk management
    Date: 2020–08–04
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/233&r=all
  18. By: International Monetary Fund
    Abstract: While Norway’s institutional arrangement for macroprudential policy is uncommon, the authorities have shown strong willingness to act. The Ministry of Finance (MoF) is the sole macroprudential decision-maker in Norway, which is rare in international comparison. However, Norges Bank and the Finanstilsynet (FSA) play important advisory roles. In recent years, the authorities have taken substantive and wide-ranging macroprudential policy actions in response to growing systemic vulnerabilities—and these seem to have been effective in slowing down some of the riskier trends. The macroprudential policy toolkit is well stocked and actively used.
    Keywords: Banking;Macroprudential policy;Financial stability assessment;Macroprudential policy instruments;Mortgages;ISCR,CR,CRE sector,CRE market,CRE company,CRE risk,FSA survey,liquid asset
    Date: 2020–08–12
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/265&r=all
  19. By: International Monetary Fund
    Abstract: This technical note leverages on the 2015 FSAP which concluded that the United States (U.S.) had a high degree of compliance with the Basel Core Principles (BCPs). The FSAP reviewed the progress achieved in addressing the main weaknesses previously identified and the main supervisory and regulatory developments since then. The key focus are the steps taken by the U.S. authorities in recent years to recalibrate and further tailor the banking regulatory and supervisory framework and the role of stress tests in the supervision process. The FSAP team has not covered the impact of COVID-19 outbreak on banks supervision and has not discussed with authorities the related policy response. The FSAP recommendations are meant to be considered once the impact of the pandemic on the economy and the banking sector becomes clearer.
    Keywords: Banking;Stress testing;Liquidity requirements;Market risk;Countercyclical capital buffers;ISCR,CR,state bank,Category IV,bank holding company,capital requirement,capital framework,savings and loan
    Date: 2020–08–10
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/248&r=all
  20. By: International Monetary Fund
    Abstract: COVID-19 pandemic: The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic, so this Technical Note (TN) does not assess the impact of the crisis or the recent crisis-related policy measures. Nonetheless, given the FSAP’s focus on vulnerabilities and policy frameworks, the findings and recommendations of the TN remain pertinent. The Danish Financial Supervisory Authority (DFSA) has improved standards in its oversight of banking and insurance sectors since the last FSAP. Nevertheless, risks persist, both in traditional forms, and new areas, such as cyber risk, AML, and innovative market entrants. This note, selects topics to meet evolving supervisory challenges and the expectation that the international supervisory standards themselves will likewise continue to rise.
    Keywords: Banking;Anti-money laundering and combating the financing of terrorism (AML/CFT);Financial Sector Assessment Program;Operational risk;External audit;ISCR,CR,risk assessment,corporate governance,places importance,risk management,supervisory mandate
    Date: 2020–08–12
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/251&r=all
  21. By: Giulio Girardi (Division of Economic and Risk Analysis, U.S. Securities and Exchange Commission, Washington); Kathleen W. Hanley (College of Business and Economics, Lehigh University); Stanislava Nikolova (College of Business, University of Nebraska-Lincoln); Loriana Pelizzon (SAFE-Goethe University Frankfurt); Mila Getmansky Sherman (Isenberg School of Management, University of Massachusetts)
    Abstract: We examine whether the concern of academics and regulators about the potential for insurers to sellsimilar assets due to the overlap in their holdings is justified. We measure this overlap using cosine similarity and find that insurers with more similar portfolios have larger subsequent common sales. We show that faced with a shock to their assets or liabilities, affected insurers with greater portfolio similarity have larger common sales that impact prices. Our measure can be used by regulators to predict the common selling of any institution that reports security or asset class holdings regardless of their public company status making it a useful ex-ante predictor of divestment behavior in times of market stress.
    Keywords: Interconnectedness, asset liquidation, similarity, financial stability, insurance companies, fire sales
    JEL: G11 G18 G2
    Date: 2020
    URL: http://d.repec.org/n?u=RePEc:ven:wpaper:2020:13&r=all
  22. By: Peter Van Tassel
    Abstract: This paper documents law of one price violations in equity volatility markets. While tightly linked by no-arbitrage restrictions, the prices of VIX futures exhibit significant deviations relative to their option-implied upper bounds. Static arbitrage opportunities occur when the prices of VIX futures violate their bounds. The deviations widen during periods of market stress and predict the returns of VIX futures. A relative value trading strategy based on the deviation measure earns a large Sharpe ratio and economically significant alpha-to-margin. There is evidence that systematic risk and demand pressure contribute to the variation in the no-arbitrage deviations over time.
    Keywords: limits-to-arbitrage; VIX futures; variance swaps; volatility; return predictability
    JEL: G12 G13 C58 C59
    Date: 2020–12–01
    URL: http://d.repec.org/n?u=RePEc:fip:fednsr:89214&r=all
  23. By: World Bank
    Keywords: Public Sector Development - Public Sector Economics Conflict and Development - Disaster Management Environment - Natural Disasters Finance and Financial Sector Development - Insurance & Risk Mitigation Urban Development - Hazard Risk Management
    Date: 2020–04
    URL: http://d.repec.org/n?u=RePEc:wbk:wboper:33592&r=all
  24. By: International Monetary Fund
    Abstract: This note presents a targeted review of selected aspects concerning the regulation and supervision of banks in Italy and their governance framework. The review was carried out as part of the 2019 Italy Financial Sector Assessment Program (FSAP) and was based on the regulatory framework in place and the supervisory practices employed as of March 2019. Since the regulation and supervision of significant banking institutions (SIs), including Italian SIs, was extensively covered as part of the 2018 Euro Area FSAP, this note focuses on the prudential regulation and supervision of less significant institutions (LSIs). In addition, the note reviewed regulatory and supervisory areas not covered by the wider EU regulatory framework, such as the supervision of anti-money laundering and countering the financing of terrorism (AML/CFT) and related party transactions, which apply to both SIs and LSIs in Italy.
    Keywords: Banking;Anti-money laundering and combating the financing of terrorism (AML/CFT);Credit risk;Operational risk;Bank supervision;ISCR,CR,risk assessment,The BdI supervisor,bank governance,business model,popolari bank,risk management,The BdI regulation
    Date: 2020–08–04
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/236&r=all
  25. By: International Monetary Fund
    Abstract: This Technical Note (TN) is a targeted review of cross-cutting themes building on the detailed assessment of the Insurance Core Principles (ICPs) conducted in 2015. The targeted review was chosen, in part, due to the performance of the U.S. insurance regulatory system in the 2015 detailed assessment where it was assessed that the U.S. observed 8 ICPs, largely observed 13 ICPs and partly observed 5 ICPs. The analysis relied on a targeted self-assessment against a subset of ICPs covering valuation and solvency, risk management, conduct, winding-up, corporate governance and enforcement, and the objectives, powers and responsibility of supervisors. The choice of subjects covered in this review is based on those aspects most significant to financial stability and a follow-up on key recommendations from the 2015 detailed assessment. The focus of the analysis has been on the state-based system of regulation and supervision, reflecting the existing institutional setup.
    Keywords: Insurance;Insurance companies;Natural disasters;Financial statements;Solvency;ISCR,CR,insurance regulator,holding company,life insurance,risk management,balance sheet,financial condition,State insurance act,state insurance department,State insurance regulator,State regulator
    Date: 2020–08–10
    URL: http://d.repec.org/n?u=RePEc:imf:imfscr:2020/244&r=all
  26. By: Laurent Lesage (IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, SnT - Interdisciplinary Centre for Security, Reliability and Trust [Luxembourg] - Uni.lu - Université du Luxembourg, Foyer Assurances [Leudelange]); Madalina Deaconu (TOSCA - TO Simulate and CAlibrate stochastic models - CRISAM - Inria Sophia Antipolis - Méditerranée - Inria - Institut National de Recherche en Informatique et en Automatique - IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, PASTA - Processus aléatoires spatio-temporels et leurs applications - Inria Nancy - Grand Est - Inria - Institut National de Recherche en Informatique et en Automatique - IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Antoine Lejay (IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, TOSCA - TO Simulate and CAlibrate stochastic models - CRISAM - Inria Sophia Antipolis - Méditerranée - Inria - Institut National de Recherche en Informatique et en Automatique - IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, PASTA - Processus aléatoires spatio-temporels et leurs applications - Inria Nancy - Grand Est - Inria - Institut National de Recherche en Informatique et en Automatique - IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Jorge Meira (SnT - Interdisciplinary Centre for Security, Reliability and Trust [Luxembourg] - Uni.lu - Université du Luxembourg); Geoffrey Nichil (Foyer Assurances [Leudelange]); Radu State (SnT - Interdisciplinary Centre for Security, Reliability and Trust [Luxembourg] - Uni.lu - Université du Luxembourg)
    Abstract: Hawkes process are temporal self-exciting point processes. They are well established in earthquake modelling or finance and their application is spreading to diverse areas. Most models from the literature have two major drawbacks regarding their potential application to insurance. First, they use an exponentially-decaying form of excitation, which does not allow a delay between the occurrence of an event and its excitation effect on the process and does not fit well on insurance data consequently. Second, theoretical results developed from these models are valid only when time of observation tends to infinity, whereas the time horizon for an insurance use case is of several months or years. In this paper, we define a complete framework of Hawkes processes with a Gamma density excitation function (i.e. estimation, simulation, goodness-of-fit) instead of an exponential-decaying function and we demonstrate some mathematical properties (i.e. expectation, variance) about the transient regime of the process. We illustrate our results with real insurance data about natural disasters in Luxembourg.
    Keywords: Point processes,Hawkes processes,insurance,EM algorithm,natural disasters
    Date: 2020–12–03
    URL: http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03040090&r=all

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