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A Conditional Valuation Approach for Path-Dependent Instruments

This paper focuses on the methodology for calculating the potential future exposure of path-dependent derivative instruments.

Dante Lomibao and Steven Zhu
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A VaR-based Model for the Yield Curve

An intuitive model for the yield curve, based on the notion of value-at-risk, is presented. It leads to interest rates that hedge against potential losses incurred from holding an underlying risky security until maturity. This result is also shown to tie in directly with the Capital Asset Pricing Model via the Sharpe Ratio. The conclusion here is that the normal yield curve can be characterised by a constant Sharpe Ratio, non-dimensionalised with respect to √T, where T is the bond maturity.

Ruben D. Cohen
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Anything Built By the FED, Can Also Be Destroyed

In this commentary, Edward Talisse examines the year’s bond investment, looking closely at the USA and countries in Europe including Spain, Italy and Greece.

Edward Talisse
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Order Statistics for Value at Risk Estimation and Option Pricing

We apply order statistics to the setting of VaR estimation. Here techniques like historical and Monte Carlo simulation rely on using the k-th heaviest loss to estimate the quantile of the profit and loss distribution of a portfolio of assets. We show that when the k-th heaviest loss is used the expected quantile and its error will be independent of the portfolio composition and the return functions of the assets in the portfolio.

Frederik Herzberg & Christoph Bennemann
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Potential Future Exposure Calculations Using the BGM Model

Within this paper the authors look at the BGM model in PFE calculations for various exotic interest rate products.

Wilmott
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Risk Management: A Review

Dr. Sébastien Lleo presents CQF Institute members with his review in Risk Management.

Sébastien Lleo
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Six Degrees of Idiocy

One of the classic works of poker, and risk management, is Herbert Yardley’s 1957 best-seller 'The Education of a Poker Player, Including Where and How One Learns to Win'. Aaron Brown explores how in both poker and finance an individual’s strategic idiocy can be quantified and analyzed.

Aaron Brown
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The End of Growth?

In this article published by the Wilmott magazine, former banker and author, Satyajit Das, asks if this is the end of economic growth and what a world of no, or low rates of, growth will look like.

Satyajit Das
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The Tide is High

In this article, Edward Talisse delivers another commentary on the state of the American financial markets.

Edward Talisse
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VaR as a Percentile

In this white paper Dr. Richard Diamond expands on the concept of Value at Risk (VAR) from a formula based on the critical value, to its true definition of being a property of the joint probability distribution of risk factors.

Richard Diamond