Search Results
Speech
Climate Change and Risk Management in Bank Supervision
Remarks at Risks, Opportunities, and Investment in the Era of Climate Change, Harvard Business School, Boston, Massachusetts.
Working Paper
Designing Market Shock Scenarios
We propose an approach for generating financial market scenarios for stress testing financial firms' market risk exposures. This approach can be used by industry practitioners and regulators for their stress scenario design. Our approach attempts to maximize risk capture with a relatively small number of scenarios. A single scenario could miss potential vulnerabilities, while stress tests using a large number of scenarios could be operationally costly. The approach has two components. First, we model relationships among market risk factors to set scenario shock magnitudes consistently across ...
Working Paper
An Evaluation of Bank VaR Measures for Market Risk During and Before the Financial Crisis
We study the performance and behavior of Value at Risk (VaR) measures used by a number of large banks during and before the financial crisis. Alternative benchmark VaR measures, including GARCH-based measures, are also estimated directly from the banks' trading revenues and help to explain the bank VaR performance results. While highly conservative in the pre-crisis period, bank VaR exceedances were excessive and clustered in the crisis period. All benchmark VaRs were more accurate in the pre-crisis period with GARCH VaR measures the most accurate in the crisis period having lower exceedance ...
Report
A general approach to integrated risk management with skewed, fat-tailed risks
The goal of integrated risk management in a financial institution is to measure and manage risk and capital across a range of diverse business activities. This requires an approach for aggregating risk types (market, credit, and operational) whose distributional shapes vary considerably. In this paper, we use the method of copulas to construct the joint risk distribution for a typical large, internationally active bank. This technique allows us to incorporate realistic marginal distributions that capture some of the essential empirical features of these risks-such as skewness and fat ...
Working Paper
Variable Annuities: Underlying Risks and Sensitivities
This paper presents a quantitative model designed to understand the sensitivity of variable annuity (VA) contracts to market and actuarial assumptions and how these sensitivities make them a potentially important source of risk to insurance companies during times of stress. VA contracts often include long dated guarantees of market performance that expose the insurer to multiple nondiversifiable risks. Our modeling framework employs a Monte Carlo simulation of asset returns and policyholder behavior to derive fair prices for variable annuities in a risk neutral framework and to estimate ...