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Author: Mr.Andreas A. Jobst
Publisher: International Monetary Fund
ISBN: 1475557531
Category : Business & Economics
Languages : en
Pages : 93
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Book Description
The recent global financial crisis has forced a re-examination of risk transmission in the financial sector and how it affects financial stability. Current macroprudential policy and surveillance (MPS) efforts are aimed establishing a regulatory framework that helps mitigate the risk from systemic linkages with a view towards enhancing the resilience of the financial sector. This paper presents a forward-looking framework ("Systemic CCA") to measure systemic solvency risk based on market-implied expected losses of financial institutions with practical applications for the financial sector risk management and the system-wide capital assessment in top-down stress testing. The suggested approach uses advanced contingent claims analysis (CCA) to generate aggregate estimates of the joint default risk of multiple institutions as a conditional tail expectation using multivariate extreme value theory (EVT). In addition, the framework also helps quantify the individual contributions to systemic risk and contingent liabilities of the financial sector during times of stress.
Author: Mr.Andreas A. Jobst
Publisher: International Monetary Fund
ISBN: 1475557531
Category : Business & Economics
Languages : en
Pages : 93
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Book Description
The recent global financial crisis has forced a re-examination of risk transmission in the financial sector and how it affects financial stability. Current macroprudential policy and surveillance (MPS) efforts are aimed establishing a regulatory framework that helps mitigate the risk from systemic linkages with a view towards enhancing the resilience of the financial sector. This paper presents a forward-looking framework ("Systemic CCA") to measure systemic solvency risk based on market-implied expected losses of financial institutions with practical applications for the financial sector risk management and the system-wide capital assessment in top-down stress testing. The suggested approach uses advanced contingent claims analysis (CCA) to generate aggregate estimates of the joint default risk of multiple institutions as a conditional tail expectation using multivariate extreme value theory (EVT). In addition, the framework also helps quantify the individual contributions to systemic risk and contingent liabilities of the financial sector during times of stress.
Author: Dan Galai
Publisher: World Scientific Publishing Company
ISBN: 9789814730723
Category : Corporations
Languages : en
Pages : 2036
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Book Description
Black and Scholes (1973) and Merton (1974) (hereafter referred to as BSM) introduced the contingent claim approach (CCA) to the valuation of corporate debt and equity. The BSM modeling framework is also named the 'structural' approach to risky debt valuation. The CCA approach considers all stakeholders of the corporation as holding contingent claims on the assets of the corporation. Each claim holder has different priorities, maturities and conditions for payouts. It is based on the principle that all the assets belong to all the liability holders.In the structural approach the arrival of the default event relies on economic arguments for why firms default as it is explicitly related to the dynamics of the economic value of the firm. A standard structural model of default timing assumes that a corporation defaults when its assets drop to a sufficiently low level relative to its liabilities.The BSM modeling framework gives the basic fundamental version of the structural model where default is assumed to occur when the net asset value of the firm at the maturity of the pure-discount debt becomes negative, i.e., market value of the assets of the firm falls below the market value of the firm's liabilities. In a regime of limited liability, the shareholders of the firm have the option to default on the firm's debt. Equity can be viewed as a European call option on the firm's assets with a strike price equal to the face value of the firm's debt. Actually, CCA can be used to value all the components of the firm's liabilities. Option pricing models are used to value stocks, bonds, and many other types of corporate claims.Different versions of the model correspond to different assumptions about the conditions when a firm defaults. Merton (1974) assumes that the firm only defaults at the maturity date of the firm's outstanding debt when the net asset value of the firm, in market value terms, is negative. Others introduce other conditions for default. Also, different authors introduce more complicated capital structure with different kinds of bonds (e.g. senior and junior), warrants, corporate taxes, ESOP, and more. Volume 1: Foundations of CCA and Equity ValuationVolume 1 presents the seminal papers of Black and Scholes (1973) and Merton (1973, 1974). This volume also includes papers that specifically price equity as a call option on the corporation. It introduces warrants, convertible bonds and taxation as contingent claims on the corporation. It highlights the strong relationship between the CCA and the Modigliani-Miller (M&M) Theorems, and the relation to the Capital Assets Pricing Model (CAPM). Volume 2: CCA Approach to Corporate Debt ValuationVolume 2 concentrates on corporate bond valuation by introducing various types of bonds with different covenants as well as introducing various conditions that trigger default. While empirical evidence indicates that the simple Merton's model underestimates the credit spreads, additional risk factors like jumps can be used to resolve it. Volume 3: Issues in Corporate Finance with CCA ApproachVolume 3 includes papers that look at issues in corporate finance that can be explained with the CCA approach. These issues include the effect of dividend policy on the valuation of debt and equity, the pricing of employee stock options and many other issues of corporate governance. Volume 4: CCA Approach to Banking and Financial IntermediationVolume 4 focuses on the application of the contingent claim approach to banks and other financial intermediaries. Regulation of the banking industry led to the creation of new financial securities (e.g., CoCos) and new types of stakeholders (e.g., deposit insurers).
Author: Thordur Jonasson
Publisher: International Monetary Fund
ISBN: 1484350545
Category : Business & Economics
Languages : en
Pages : 133
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Book Description
This paper provides an overview of sovereign debt portfolio risks and discusses various liability management operations (LMOs) and instruments used by public debt managers to mitigate these risks. Debt management strategies analyzed in the context of helping reach debt portfolio targets and attain desired portfolio structures. Also, the paper outlines how LMOs could be integrated into a debt management strategy and serve as policy tools to reduce potential debt portfolio vulnerabilities. Further, the paper presents operational issues faced by debt managers, including the need to develop a risk management framework, interactions of debt management with fiscal policy, monetary policy, and financial stability, as well as efficient government bond markets.
Author: Mr.Giovanni Dell'Ariccia
Publisher: International Monetary Fund
ISBN: 1484359623
Category : Business & Economics
Languages : en
Pages : 54
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Book Description
This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.
Author:
Publisher: Lulu.com
ISBN: 9291316695
Category : Bank capital
Languages : en
Pages : 294
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Book Description
Author: Vanessa Le Leslé
Publisher: International Monetary Fund
ISBN: 1475502656
Category : Business & Economics
Languages : en
Pages : 50
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Book Description
In this paper, we provide an overview of the concerns surrounding the variations in the calculation of risk-weighted assets (RWAs) across banks and jurisdictions and how this might undermine the Basel III capital adequacy framework. We discuss the key drivers behind the differences in these calculations, drawing upon a sample of systemically important banks from Europe, North America, and Asia Pacific. We then discuss a range of policy options that could be explored to fix the actual and perceived problems with RWAs, and improve the use of risk-sensitive capital ratios.
Author: Rosa Lastra
Publisher: OUP Oxford
ISBN: 9780199671106
Category : Law
Languages : en
Pages : 0
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Book Description
The most authoritative and comprehensive book available on sovereign debt management written by practitioners and scholars of world renown.
Author: Anthony Saunders
Publisher: John Wiley & Sons
ISBN: 0470622369
Category : Business & Economics
Languages : en
Pages : 373
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Book Description
A classic book on credit risk management is updated to reflect the current economic crisis Credit Risk Management In and Out of the Financial Crisis dissects the 2007-2008 credit crisis and provides solutions for professionals looking to better manage risk through modeling and new technology. This book is a complete update to Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms, reflecting events stemming from the recent credit crisis. Authors Anthony Saunders and Linda Allen address everything from the implications of new regulations to how the new rules will change everyday activity in the finance industry. They also provide techniques for modeling-credit scoring, structural, and reduced form models-while offering sound advice for stress testing credit risk models and when to accept or reject loans. Breaks down the latest credit risk measurement and modeling techniques and simplifies many of the technical and analytical details surrounding them Concentrates on the underlying economics to objectively evaluate new models Includes new chapters on how to prevent another crisis from occurring Understanding credit risk measurement is now more important than ever. Credit Risk Management In and Out of the Financial Crisis will solidify your knowledge of this dynamic discipline.
Author: Darrell Duffie
Publisher: Princeton University Press
ISBN: 1400829178
Category : Business & Economics
Languages : en
Pages : 415
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Book Description
In this book, two of America's leading economists provide the first integrated treatment of the conceptual, practical, and empirical foundations for credit risk pricing and risk measurement. Masterfully applying theory to practice, Darrell Duffie and Kenneth Singleton model credit risk for the purpose of measuring portfolio risk and pricing defaultable bonds, credit derivatives, and other securities exposed to credit risk. The methodological rigor, scope, and sophistication of their state-of-the-art account is unparalleled, and its singularly in-depth treatment of pricing and credit derivatives further illuminates a problem that has drawn much attention in an era when financial institutions the world over are revising their credit management strategies. Duffie and Singleton offer critical assessments of alternative approaches to credit-risk modeling, while highlighting the strengths and weaknesses of current practice. Their approach blends in-depth discussions of the conceptual foundations of modeling with extensive analyses of the empirical properties of such credit-related time series as default probabilities, recoveries, ratings transitions, and yield spreads. Both the "structura" and "reduced-form" approaches to pricing defaultable securities are presented, and their comparative fits to historical data are assessed. The authors also provide a comprehensive treatment of the pricing of credit derivatives, including credit swaps, collateralized debt obligations, credit guarantees, lines of credit, and spread options. Not least, they describe certain enhancements to current pricing and management practices that, they argue, will better position financial institutions for future changes in the financial markets. Credit Risk is an indispensable resource for risk managers, traders or regulators dealing with financial products with a significant credit risk component, as well as for academic researchers and students.
Author: Mr.D. F. I. Folkerts-Landau
Publisher: International Monetary Fund
ISBN: 1451979614
Category : Business & Economics
Languages : en
Pages : 54
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Book Description
In an environment of sizable and volatile capital flows and integrated international capital markets, large and unhedged net external sovereign liabilities expose countries to swings in international asset prices and to potential speculative currency attacks. The paper argues that an essential step in reducing emerging market vulnerability to such external shocks is to reform the institutional arrangements governing asset and liability management policies, so as to promote a transparent, publicly accountable, and professional incentive structure.
