Three Essays in Portfolio Management and Credit Risk PDF Download
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Author: Andriy Demchuk
Publisher:
ISBN:
Category :
Languages : en
Pages : 122
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Author: Andriy Demchuk
Publisher:
ISBN:
Category :
Languages : en
Pages : 122
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Author: Wei He
Publisher:
ISBN:
Category :
Languages : en
Pages :
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This Ph.D. dissertation contains three individual and internally related essays. The first essay applies the least-squares Monte-Carlo (LSM) methodology to derive the distribution of the exotic option values at a future time. LSM presents a powerful statistical procedure that efficiently yields derivative distributions for exotic options that do not possess analytic solutions. By means of several examples, using options with closed-from solutions, this essay demonstrates the ability of LSM to produce excellent estimates of derivative distribution at a reasonable computational cost. The second and third essays compare two of the major credit risk portfolio models used by two prominent financial companies: J. P. Morgan's CreditMetrics and Credit Swiss First Boston's CreditRisk+. The second essay compares the two models from a methodological and an empirical point of view. Factor Analysis is utilized to link the different input data employed by these two models. The third essay creates a hypothetical world in which the true transition matrices are known so that a benchmark distribution of portfolio loss is derived to evaluate the model's performance. The results suggest that despite the fact that the recommendations made by each approach to a financial institution trying to determine how much economic capital to hold is different, these two models perform equally well when credit-rating-change risk is eliminated from the CreditMetrics approach.
Author: Gordon Delianedis
Publisher:
ISBN:
Category : Credit
Languages : en
Pages : 326
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Author: Clemens Mueller
Publisher:
ISBN:
Category :
Languages : en
Pages : 208
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Author: Bastian Breitenfellner
Publisher:
ISBN:
Category :
Languages : en
Pages : 125
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Author: Tingting Ji
Publisher:
ISBN:
Category : Bankruptcy
Languages : en
Pages :
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Abstract: Three essays comprise this dissertation. The first essay uses panel data to show that labor income risk alone cannot explain limited stock market participation. However, transaction costs and household demographics, considered jointly, can determine both the discrete choice of whether to hold stock and the amount held, conditional on whether the household is already investing in the stock market. Transaction costs are proxied by state-level number of brokers per capita. The second essay builds on the first essay. I measure two different covariance terms. One is between self-evaluated house value and uninsurable labor income risk. The other is between housing investment return and stock return. The results show that homeownership has a diversification effect on stock holdings. This effect occurs because adding a house to the household portfolio can significantly decrease the overall risk of the portfolio. The last essay empirically shows that unemployment is significant in determining both consumer bankruptcy filings and delinquency even after controlling for household demographics. Furthermore, I show that unemployment and the debt/wealth ratio also affect the choice of whether to file for bankruptcy under chapter 7 or chapter 13, after controlling for demographics. The paper then points out some of the implications the empirical results have for policy-makers and banking regulators.
Author: Steffen Schaarschmidt
Publisher:
ISBN:
Category :
Languages : en
Pages : 130
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Author: Vikrant Tyagi
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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The current financial crisis has lessons for three areas of credit portfolio management. First, the credit crisis has highlighted the need to manage the funding risk of a bank. Second, it has highlighted the need to manage the underwriting risk of debt syndications. Finally, it has suggested the need to understand the drivers of relationship banking. The first paper in this dissertation develops an empirically grounded model to manage the funding risk of a bank. The second paper develops an option pricing framework to manage the underwriting risk in debt syndications. The last paper in this dissertation uses a proprietary dataset to study the empirical determinants of relationship banking benefits.
Author: Hilal Yilmaz
Publisher:
ISBN: 9780542991127
Category :
Languages : en
Pages : 59
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This thesis aims to develop techniques for improving portfolio optimization. The second chapter presents an improved covariance matrix estimator in the mean-variance optimization setting. Sample covariance matrix can be singular when the number of observations is less than the number of assets, and nearly singular when the number of observations exceeds the number of assets. Since the sample covariance matrix is not well-conditioned, using it as an input in mean-variance optimization can result in unreasonable "optimal" portfolios and badly biased estimates of Sharpe ratios. We address this problem by imposing constraints on the Sharpe ratio, asset return variances, and the variance of the global minimum variance portfolio. Our simulations show that the Constrained Maximum Likelihood Estimator (CMLE) performs better than the sample covariance matrix. Moreover, when the shrinkage approach is applied to the CMLE and single index covariance matrix, it performs better than the shrinkage of the sample covariance matrix and the single index covariance matrix of Ledoit and Wolf (2004). During the last two decades Value-at-Risk (VaR) has become the most commonly used measure of market risk due to its ease of calculation and simple interpretation. However, VaR has some undesirable mathematical characteristics such as lack of subadditivity and convexity. Conditional Value-at-Risk (CVaR), defined as the expected loss conditional on a loss larger than the VaR is an intuitively appealing coherent risk measure (Artzner et al. (1999)). However, tractable methods to optimize portfolios based on CVaR are not readily available. In the third chapter, we use the volatility dispersion trading strategy to illustrate that the quantile regression approach developed by Bassett et al. (2004) to risk management with CVaR allows for the easy solution of this otherwise difficult hedging and optimization problem. Credit risk is more difficult to model than market risk because the loss distribution is asymmetric and "fat-tailed" relative to the normal distribution. In the fourth chapter, we use a standard bond portfolio to demonstrate that credit risk optimization can be carried out using the quantile regression approach to compute CVaR developed by Bassett et al. (2004).
Author: Byong-Ju Lee
Publisher: Stanford University
ISBN:
Category :
Languages : en
Pages : 132
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This thesis consists of three essays on international finance. The first essay is "Exchange rates and Fundamentals". A new open interest rate parity condition that takes account of economic fundamentals is developed from stochastic discount factors (SDFs) of two countries. Through this parity condition, business cycles or fundamentals are linked to exchange rates. Key empirical findings from this parity condition are as follows. First, this model beats the random walk hypothesis: economic fundamentals explain exchange rate movements for high interest rate currencies. Exchange rates of low interest rate currencies act like a random walk because they are less correlated with fundamentals owing to their low risk. For example, U.S. business cycles explain the direction of changes in exchange rates against the dollar. The same thing is true for Japan. Second, this model resolves the forward premium puzzle: the forward premium puzzle is not a general characteristic as regarded in previous studies. It happens when the risk awareness of investors is low, during economic expansions and for low risk currencies. The second essay is "Carry Trade and Global Financial Instability". Carry trade, an opportunistic investment strategy that takes advantage of interest rate differential across countries, is identified the cause of the large-scale depreciations of peripheral currencies in the later half of 2008. A simultaneous equations model, which is derived from a conceptual partial equilibrium model for a local foreign exchange market, is estimated from a cross-sectional sample. The results suggest that the larger appreciation of the yen than the dollar was brought about by a lack of the local supply of the yen rather than a more severe crunch of yen credits. The third essay is "The Economic Origin of Letters of Credit". This essay discusses the economic origin of letters of credit, an instrument widely used in international trade. A game theoretical analysis shows that letters of credit improve efficiency in trade settlements, increasing returns in trade. A few notable facts on letters of credit are discussed. First, the new institution is adopted by merchant banks to maximize their profits and in the process, an improvement in efficiency of international transactions is obtained. Second, the organization established by the legacy institution, bills of exchange, played a critical role in adopting the new institution. Third, the legal enforcement is not essential in this economic institution. Finally, two drivers are identified that improve efficiency of transactions: concentration and projection.
