Research Monthly

We react to the recent publication of the Senior Supervisors Group, focusing in particular on the areas of statistical risk measures, stress tests and liquidity.

We address the interaction of credit and market risks, and attempt to describe what challenges have been solved, which have emerged, and which have been ignored for too long.

We set out to construct a consistent framework for assessing inflation risk across multiple markets, focusing in particular on the criteria for a suitable set of inflation risk factors.

In light of the recent events with securities backed by subprime mortgages, we discuss a number of approaches to assess risk in the absence of regular trading or reliable pricing information.

We first discuss stress testing for not simply a position, but a strategy implementing the yen carry trade, and then examine the extent to which the market appears dependent on this trade.

We identify two main versions of correlation risk--parameter uncertainty and new financial products--and examine the modeling challenges implied by each.

We build and investigate a goveranance factor in the context of our equity factor model, and show that the factor adds to our ability to explain portfolio risk.

We examine the performance of risk models through the recent natural gas stresses. There are lessons to be learned, but the models performed as intended.

We address macroeconomic stress testing by presenting price-based risk indicators, and investigating how relationships between these have changed recently.

In this piece, we attempt to clarify the three main notions of financial or risk exposure: sensitivity, leverage, and credit.

We re-examine the historical simulation method, and argue that while it has its benefits, few relate to producing good risk forecasts.

We examine which historical time series are most appropriate for forecasting risk in non-financial futures contracts.

We consider the problem of solvency risk for pension and insurance firms.

We look at a variety of notions of credit spreads, and consider what characteristics make a particular notion most useful for a risk manager.

We attempt to follow some of our advice from last month, that Value-at-Risk exceptions should be diagnosed and explained.

We revisit the subject of backtesting.

We examine the relationship between the equity, equity options and credit markets through the structural model framework

We address the problem of identifying market scenarios to which our portfolio is most vulnerable

Our first note takes up the topic of the information needs of a hedge fund investor