Filtered historical simulation ( FHS )—a simple method of calculating Value-at-Risk that reacts quickly to changes in market volatility—is a popular for margin at central counterparties. However, does not address how correlation can vary through time. Typically, systems, each risk factor is filtered individually so the computational burden increases linearly as number factors grows. We propose an alternative filters returns using latent derived from principal component analysis. compare this...

Abstract Risk was incorporated into monetary aggregation over thirty-five years ago, using a stochastic version of the workhorse money-in-the-utility-function model. Nevertheless, mathematical foundations this model remain shaky. To firm foundations, paper employs richer probability concepts than Borel-measurability, enabling me to prove existence well-behaved solution and derive Euler equations. This measurability approach is less common in economics, possibly because derivation equations...

The authors survey the literature on aggregation of monetary assets and summarizes theoretical results not readily available elsewhere. article develops a dynamic, intertemporal consumer decision model explains how conditions may be obtained from competitive firm.

Large value payment and securities settlement systems are important components of an economy's financial system. Many such operated by central banks liquidity intensive. Central often provide inexpensive to facilitate settlement. This leads a number policy questions about the provision liquidity. To answer these questions, need understand what factors influence timing paper offers model better intraday patterns identifies three that settlement: cost liquidity, participant's exposure risk,...

We provide an accurate closed-form expression for the expected shortfall of linear portfolios with elliptically distributed risk factors. Our results aim to correct inaccuracies that originate in Kamdem (2005) and are present also at least thirty other papers referencing it, including recent survey by Nadarajah et al. (2014) on estimation methods shortfall. In particular, we show correction popular multivariate Student t setting eliminates understatement a factor varying from four more than...

By stepping between bilateral counterparties, a central counterparty (CCP) transforms credit exposure. CCPs generally improve financial stability. Nevertheless, large are by nature concentrated and interconnected with major global banks. Moreover, although they mitigate risk, create liquidity risks, because rely on participants to provide cash. Such requirements increase both market volatility default; consequently, CCP needs inherently procyclical. This procyclicality makes it more...

We develop a representation of nonlinear integrated vector processes based on the martingale theorem Hall and Heyde (1980). In representation, linear combinations components process may be stationary, so system linearly cointegrated, yet exhibit or short-run, dynamics. test for cointegration relations with dynamics in weekly U.S. interest rates. find that individual rates are I(1) is cointegrated. Furthermore, both system's short-run nonlinear.

We provide an accurate closed-form expression for the expected shortfall of linear portfolios with elliptically distributed risk factors. Our results aim to correct inaccuracies that originate in Kamdem (2005) and are present also recent comprehensive survey by Nadarajah, Zhang, Chan (2014) on estimation methods shortfall. In particular, we show correction popular multivariate Student t setting eliminates understatement a factor varying from at least 4 more than 100 across different tail...

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Risk was first incorporated into monetary aggregation over thirty-five years ago,using a stochastic version of the workhorse money-in-the-utility-function model.Nevertheless, mathematical foundations this model remain shaky.To firm foundations, paper employs slightly richer probability conceptthan standard Borel-measurability, which enables me to prove existence awell-behaved solution and derive Euler equations. This measurabilityapproach is long-established albeit less common in economics,...

Central counterparties' ability to hold successful default auctions is critically important financial stability. However, due the unique features of these auctions, standard auction theory results do not apply. We present a model CCP that incorporates both vital, but non-standard, objective minimizing likelihood it suffers reputationally damaging losses and potential for information leakage affect members' private portfolio valuations. This gives insight into key question how CCPs should...

By stepping between bilateral counterparties, central counterparties (CCPs) transform credit exposure, thereby improving financial stability. But, large CCPs are concentrated and interconnected with major global banks. Moreover, although they mitigate risk, create liquidity risks, because require participants to provide cash. Such requirements increase market volatility; consequently, CCP needs inherently procyclical. This procyclicality makes it more challenging assess CCPs’ resilience in...

Large value payment and securities settlement systems are important components of an economy's financial system. Many such operated by central banks liquidity intensive. Central often provide inexpensive to facilitate settlement. This leads a number policy questions about the provision liquidity. To answer these questions, need understand what factors influence timing paper offers model better intraday patterns identifies three that settlement: cost liquidity, participant's...