Catálogo de publicaciones - libros

The problem how to evaluate and monitor the quality of credit risk models has recently received much attention. The discussions about the inclusion of internal models in the Basel Capital Accord highlight this fact. Basel II does not allow the use of full-scale credit portfolio risk models for regulatory capital calculation because regulators are concerned that model quality cannot be validated accurately enough. However, banks are allowed to use internal credit rating systems although it is by far not clear how accurately their quality may be evaluated. This paper discusses the current state-of-the-art concerning methods and empirical results for validating both credit portfolio risk models and internal credit rating systems. In order to allow for a meaningful assessment of the scope and limits of model validation we closely follow and compare our results to the existing literature on validating market risk models.

This paper provides estimators for the default probability and default correlation for a portfolio of obligors. Analogously to rating classes, homogeneous groups of obligors are considered. The estimations are made in a general Bernoulli mixture model with a minimum of assumptions and in a single-factor model. The first case is treated with linear distribution-free estimators and the second case with the maximum-likelihood method. All problems are viewed from different points of origin to address a variety of practical questions.

Since private equity investments are not publicly traded, a key issue in measuring investment risks of institutional private equity investors arises from a careful measurement of investment returns in the first place. Prices of private equity investments are typically observed at low frequency and are determined by transactions under low liquidity. This contribution highlights useful approaches to the problem of return measurement under conditions of illiquidity. Then, specific risk management issues, including asset allocation issues, are discussed.

In this chapter, we conclude the study of stationary solutions and describe several suggestions obtained by this for the dynamics of (3.1), where Ω x2282; Rn is a bounded domain with smooth boundary Ω, a > 0 is a constant, and ν is the outer unit vector on ∂Ω. This system was proposed by Nagai [106] in the context of chemotaxis in mathematical biology. Here, u = u(x, t) and v = v(x, t) stand for the density of cellular slime molds and the concentration of chemical substances secreted by themselves, respectively, at the position x Ω and the time t > 0.

’Operational Risk’ (OpRisk), interpreted in the context of Basel II as ‘the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events’, introduces a challenge to financial services providers and institutions who have to date predominantly controlled their organization’s exposure to market and credit risk. It is no surprise that approaches chosen and methods employed are often dominated by the needs of corporate controlling, accounting and regulatory reporting functions. This observation raises no immediate concerns, however, a lack of proactive cooperation from risk management counterparts can render controlling-driven OpRisk initiatives inefficient and ineffective over time. Moreover, to portray a worst-case evolution, attempting to address Basel II’s OpRisk by means of introducing another set of independent software tools into an already complex IT infrastructure; generating yet another pool of practically irreconcilable data originating from a mix of objective measurements and individual subjective assessments of uncertain quality; and employing practically incompatible analysis methods; may actually raise an organization’s exposure to OpRisk, hence defeating the objective.

Beyond reactively addressing stakeholders’ and managers’ requirements, appropriately implemented OpRisk management infrastructure, process and people investments can be business enablers — turning risk management into an opportunity and addressing the requirements of Advanced Measurement Approaches (AMA) as a desirable side-effect. Early-mover financial services providers and a larger number of industrial organizations have in these efforts demonstrably generated net value. This article attempts to outline a generic roadmap for organizations who have in the past placed little or no emphasis on the management aspects of OpRisk — allowing the early introduction of those evolutionary steps known to generate considerable value quickly; highlighting some appropriate choices at policy level; and building on practical lessons learnt in managing typical hurdles throughout the implementation of suitable OpRisk management systems and processes.

Dramatic events in the recent past have drawn attention to catastrophe risk management problems. The devastating terrorist attacks of September 11, 2001 incurred the highest insured losses to date. Furthermore, a trend of increasing losses from natural catastrophes appears to be observable since the late 1980s. The increase in catastrophe losses triggered intensive discussion about the management of catastrophic risk, focusing on three issues. First, considering the loss potential of certain catastrophic events, the insurance markets’ capacity does not seem to be sufficient. An approach to address this capacity issue can be seen in passing certain catastrophic risks to investors via securitization. Second, after the events of September 11, 2001, the government’s role as a bearer of risk became an increasingly important issue. Finally, as has been recently demonstrated by the floods in Europe of August 2002, problems of protecting against catastrophic threats do not only exist on the supply side but also on the demand side. Thus policymakers are considering the establishment of mandatory insurance for fundamental risks such as flood and windstorm. This paper addresses aspects of these three issues. In particular, we are concerned with the extent to which state or government involvement in the management of catastrophic risk is reasonable.

Insurance and financial markets are converging as (re-)insurers are searching for new ways of expanding their underwriting capacities and managing their risk exposures. Catastrophe-linked instruments have already established themselves as a new asset class which offers unique profit and diversification opportunities for the investor community. This chapter analyzes the principal forces behind the securitization of catastrophic insurance risk and thereby highlights key factors which determine to what extent and with what means other forms of insurance risks (in particular other types of property & casualty, longevity, health and weather risks) can be transferred to financial markets in the future.

Alternative risk transfer (ART) refers to the products and solutions that represent the convergence or integration of capital markets and traditional insurance. The increasingly diverse set of offerings in the ART world has broadened the range of solutions available to corporate risk managers for controlling undesired risks, increased competition amongst providers of risk transfer products and services, and heightened awareness by corporate treasurers about the fundamental relations between corporation finance and risk management. This chapter summarizes the dominant products and solutions that comprise the ART world today.

It is primarily longevity risks which are borne by pension, annuity and long-term care products. The demand for such products has been increasing rapidly, leading to rising concerns about how longevity risks should be properly managed. Difficulties in making long-term forecasts for life expectancies, adverse selection, shortsightedness, and moral hazard problems impede the sound assessment and pricing of such risks and the development of appropriate reinsurance markets. This paper discusses some possible approaches to improving the management of longevity risks. These include finite reinsurance and capital market solutions. It is stressed that governments could lend considerable support to the insurance industry by kick-starting markets for indexed long-term bonds.

This contribution analyzes the implications of two major determinants influencing the asset allocation decision of German life insurers, which are the capital market development on the one hand and the interest rate guarantees of the traditional life insurance policies on the other hand. The adverse development of the stock prices between 2000 and 2002 asks for a consideration of not only the “normal” volatility but also the worst-case developments in an asset/liability management. In order to meet the latter requirement, we technically apply the risk measures of Value-at-Risk and Conditional Value-at-Risk. German life insurance policies incorporate interest rate guarantees, which are granted on an annual basis. This specific “myopic” nature of guarantees creates — beyond the control of the shortfall risk in general — the necessity to manage the asset allocation on an annual basis to match the time horizon of assets and liabilities.

A quantitative approach analyzes the impacts on the asset allocation decision. In our research we do not only consider market valuation, but also institutional peculiarities (such as hidden reserves and accounting norms) of German life insurers. We reveal the possibility of a riskless one-year investment, either based on market values or on book values, to be crucial for guaranteeing interest rates on an annual basis.