Testing risk proxies for financial collateral haircuts: adequacy of capturing tail risk

2020 ◽  
Vol 21 (3) ◽  
pp. 299-316
Author(s):  
Lukasz Prorokowski ◽  
Oleg Deev ◽  
Hubert Prorokowski
Keyword(s):  
Asset Price ◽  
Price Volatility ◽  
Statistical Tools ◽  
Tail Risk ◽  
Content Type ◽  
Kolmogorov Smirnov ◽  
Tail Events ◽  
Individual Asset ◽  
Equity Index ◽  
Smirnov Test

Purpose The use of risk proxies in internal models remains a popular modelling solution. However, there is some risk that a proxy may not constitute an adequate representation of the underlying asset in terms of capturing tail risk. Therefore, using empirical examples for the financial collateral haircut model, this paper aims to critically review available statistical tools for measuring the adequacy of capturing tail risk by proxies used in the internal risk models of banks. In doing so, this paper advises on the most appropriate solutions for validating risk proxies. Design/methodology/approach This paper reviews statistical tools used to validate if the equity index/fund benchmark are proxies that adequately represent tail risk in the returns on an individual asset (equity/fund). The following statistical tools for comparing return distributions of the proxies and the portfolio items are discussed: the two-sample Kolmogorov–Smirnov test, the spillover test and the Harrell’s C test. Findings Upon the empirical review of the available statistical tools, this paper suggests using the two-sample Kolmogorov–Smirnov test to validate the adequacy of capturing tail risk by the assigned proxy and the Harrell’s C test to capture the discriminatory power of the proxy-based collateral haircuts models. This paper also suggests a tool that compares the reactions of risk proxies to tail events to verify possible underestimation of risk in times of significant stress. Originality/value The current regulations require banks to prove that the modelled proxies are representative of the real price observations without underestimation of tail risk and asset price volatility. This paper shows how to validate proxy-based financial collateral haircuts models.

A new method for process control based on goodness of fit tests

2015 ◽  
Vol 32 (2) ◽  
pp. 132-143
Author(s):  
Mohammad Saleh Owlia ◽  
Mohammad Saber Fallah Nezhad ◽  
Mohesn Sheikh Sajadieh
Keyword(s):  
Process Control ◽  
Design Methodology ◽  
Goodness Of Fit ◽  
New Method ◽  
Content Type ◽  
Goodness Of Fit Tests ◽  
Kolmogorov Smirnov ◽  
Shift Detection ◽  
The Subject ◽  
Smirnov Test

Purpose – The purpose of this paper is to propose a new method based on goodness of fit tests for shift detection problems. Design/methodology/approach – In this method, although the distribution of gathered data from the process is the subject of control, but any out-of-control signal could also be generalized to the overall state of the process including the parameters of the distribution. Findings – Results of simulation study denote that among goodness of fit tests, the χ2 test has a better performance than the Kolmogorov-Smirnov test in detecting shifts of process. Also comparison of proposed method with traditional methods denotes that, proposed method generally has smaller probabilities of first and second type errors. Originality/value – To the best of author’s knowledge, no attention has previously been paid to application of goodness of fit tests in process control.

Fifty years of UK asset price volatility

2000 ◽  
Vol 2 (3) ◽  
pp. 63-77 ◽  
Author(s):  
Nicola Anderson ◽  
Francis Breedon
Keyword(s):  
Asset Price ◽  
Price Volatility

Age dependency of the diabetes effects on the iris recognition systems performance evaluation results

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Mohammadreza Azimi ◽  
Seyed Ahmad Rasoulinejad ◽  
Andrzej Pacut
Keyword(s):  
Iris Recognition ◽  
Recognition Task ◽  
Aging Effect ◽  
Recognition System ◽  
Health Condition ◽  
Age Dependency ◽  
Biometric Systems ◽  
Kolmogorov Smirnov ◽  
Recognition Systems ◽  
Smirnov Test

AbstractIn this paper, we attempt to answer the questions whether iris recognition task under the influence of diabetes would be more difficult and whether the effects of diabetes and individuals’ age are uncorrelated. We hypothesized that the health condition of volunteers plays an important role in the performance of the iris recognition system. To confirm the obtained results, we reported the distribution of usable area in each subgroup to have a more comprehensive analysis of diabetes effects. There is no conducted study to investigate for which age group (young or old) the diabetes effect is more acute on the biometric results. For this purpose, we created a new database containing 1,906 samples from 509 eyes. We applied the weighted adaptive Hough ellipsopolar transform technique and contrast-adjusted Hough transform for segmentation of iris texture, along with three different encoding algorithms. To test the hypothesis related to physiological aging effect, Welches’s t-test and Kolmogorov–Smirnov test have been used to study the age-dependency of diabetes mellitus influence on the reliability of our chosen iris recognition system. Our results give some general hints related to age effect on performance of biometric systems for people with diabetes.

Estimating defaults in organized security lending markets

2016 ◽  
Vol 24 (3) ◽  
pp. 343-362
Author(s):  
Latif Cem Osken ◽  
Ceylan Onay ◽  
Gözde Unal
Keyword(s):  
Credit Risk ◽  
Stock Returns ◽  
Stock Price ◽  
Price Volatility ◽  
Equity Market ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Content Type ◽  
Central Counterparties ◽  
Risk Determinants

Purpose This paper aims to analyze the dynamics of the security lending process and lending markets to identify the market-wide variables reflecting the characteristics of the stock borrowed and to measure the credit risk arising from lending contracts. Design/methodology/approach Using the data provided by Istanbul Settlement and Custody Bank on the equity lending contracts of Securities Lending and Borrowing Market between 2010 and 2012 and the data provided by Borsa Istanbul on Equity Market transactions for the same timeframe, this paper analyzes whether stock price volatility, stock returns, return per unit amount of risk and relative liquidity of lending market and equity market affect the defaults of lending contracts by using both linear regression and ordinary least squares regression for robustness and proxying the concepts of relative liquidity, volatility and return constructs by more than variable to correlate findings. Findings The results illustrate a statistically significant relationship between volatility and the default state of the lending contracts but fail to establish a connection between default states and stock returns or relative liquidity of markets. Research limitations/implications With the increasing pressure for clearing security lending contracts in central counterparties, it is imperative for both central counterparties and regulators to be able to precisely measure the risk exposure due to security lending transactions. The results gained from a limited set of lending transactions merit further studies to identify non-borrower and non-systemic credit risk determinants. Originality/value This is the first study to analyze the non-borrower and non-systemic credit risk determinants in security lending markets.

The dependence structure in volatility between Shanghai and Shenzhen stock market in China

2016 ◽  
Vol 6 (3) ◽  
pp. 264-283 ◽  
Author(s):  
Mingyuan Guo ◽  
Xu Wang
Keyword(s):  
Stock Market ◽  
High Frequency ◽  
Estimation Method ◽  
Garch Model ◽  
Price Volatility ◽  
Market Volatility ◽  
High Frequency Data ◽  
Dependence Structure ◽  
Frequency Data ◽  
Content Type

Purpose – The purpose of this paper is to analyse the dependence structure in volatility between Shanghai and Shenzhen stock market in China based on high-frequency data. Design/methodology/approach – Using a multiplicative error model (hereinafter MEM) to describe the margins in volatility of China’s Shanghai and Shenzhen stock market, this study adopts static and time-varying copulas, respectively, estimated by maximum likelihood estimation method to describe the dependence structure in volatility between Shanghai and Shenzhen stock market in China. Findings – This paper has identified the asymmetrical dependence structure in financial market volatility more precisely. Gumbel copula could best fit the empirical distribution as it can capture the relatively high dependence degree in the upper tail part corresponding to the period of volatile price fluctuation in both static and dynamic view. Originality/value – Previous scholars mostly use GARCH model to describe the margins for price volatility. As MEM can efficiently characterize the volatility estimators, this paper uses MEM to model the margins for the market volatility directly based on high-frequency data, and proposes a proper distribution for the innovation in the marginal models. Then we could use copula-MEM other than copula-GARCH model to study on the dependence structure in volatility between Shanghai and Shenzhen stock market in China from a microstructural perspective.

Multifractal characterization of mechanical vibration signals through improved empirical mode decomposition-based detrended fluctuation analysis

2016 ◽  
Vol 231 (22) ◽  
pp. 4139-4149 ◽  
Author(s):  
Du Wenliao ◽  
Guo Zhiqiang ◽  
Gong Xiaoyun ◽  
Xie Guizhong ◽  
Wang Liangwen ◽  
...  
Keyword(s):  
Empirical Mode Decomposition ◽  
Detrended Fluctuation Analysis ◽  
Fluctuation Analysis ◽  
Intrinsic Mode Functions ◽  
Vibration Signals ◽  
Multifractal Detrended Fluctuation Analysis ◽  
Mode Decomposition ◽  
Kolmogorov Smirnov ◽  
Detrended Fluctuation ◽  
Smirnov Test

A novel multifractal detrended fluctuation analysis based on improved empirical mode decomposition for the non-linear and non-stationary vibration signal of machinery is proposed. As the intrinsic mode functions selection and Kolmogorov–Smirnov test are utilized in the detrending procedure, the present approach is quite available for contaminated data sets. The intrinsic mode functions selection is employed to deal with the undesired intrinsic mode functions named pseudocomponents, and the two-sample Kolmogorov–Smirnov test works on each intrinsic mode function and Gaussian noise to detect the noise-like intrinsic mode functions. The proposed method is adaptive to the signal and weakens the effect of noise, which makes this approach work well for vibration signals collected from poor working conditions. We assess the performance of the proposed procedure through the classic multiplicative cascading process. For the pure simulation signal, our results agree with the theoretical results, and for the contaminated time series, the proposed method outperforms the traditional multifractal detrended fluctuation analysis methods. In addition, we analyze the vibration signals of rolling bearing with different fault types, and the presence of multifractality is confirmed.

scholarly journals Relationship between oral habits and spirometry maneuvers, in children

Revista CEFAC ◽  
2018 ◽  
Vol 20 (1) ◽  
pp. 37-43
Author(s):  
Rafaela Coelho Minsky ◽  
Tayná Castilho ◽  
Roseane Rebelo Silva Meira ◽  
Tatiana Godoy Bobbio ◽  
Camila Isabel Santos Schivinski
Keyword(s):  
Healthy Children ◽  
Chi Square ◽  
Cross Sectional ◽  
Public And Private ◽  
Oral Habits ◽  
Qualitative Variables ◽  
Chi Square Test ◽  
Kolmogorov Smirnov ◽  
Thumb Sucking ◽  
Smirnov Test

ABSTRACT Purpose: to analyze whether deleterious oral habits can influence the number of attempts of forced spirometry maneuvers performed by healthy children. Methods: this observational and cross-sectional analytical study included 149 healthy children aged 6-12 years attending public and private schools in Florianópolis, SC, Brazil. A validated protocol was applied for the analysis of deleterious oral habits. The children were grouped according to the number of spirometry maneuvers needed to achieve successful spirometry results, as follows: G1) children who needed 3 maneuvers; G2) 4 maneuvers; G3) 5-8 maneuvers. Data were analyzed with the Kolmogorov-Smirnov test and the Kruskal-Wallis test was applied to compare quantitative variables between the groups. The Chi-square test was used to assess the association between the groups and qualitative variables. Results: there was no association between the number of attempts and the qualitative variables evaluated by the protocol. There was also no difference between the groups regarding quantitative variables for breastfeeding time, breastfeeding occurrence, use of pacifiers, and thumb sucking. Conclusion: the presence of DOH did not influence the number of forced spirometry maneuvers, performed by the healthy children in this study.

Volatility integration of gold and crude oil prices with the interest rates in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shailesh Rastogi ◽  
Adesh Doifode ◽  
Jagjeevan Kanoujiya ◽  
Satyendra Pratap Singh
Keyword(s):  
Interest Rate ◽  
Crude Oil ◽  
Interest Rates ◽  
Global Economy ◽  
Spillover Effect ◽  
Price Volatility ◽  
Volatility Spillover ◽  
Content Type ◽  
Crude Oil Prices ◽  
The Impact

PurposeCrude oil, gold and interest rates are some of the key indicators of the health of domestic as well as global economy. The purpose of the study is to find the shock volatility and price volatility effects of gold and crude oil market on interest rates in India.Design/methodology/approachThis study finds the mutual and directional association of the volatility of gold, crude oil and interest rates in India. The bi-variate GARCH models (Diagonal VEC GARCH and BEKK GARCH) are applied on the sample data of gold price, crude oil price and yield (interest rate) gathered from November 30, 2015 to November 16, 2020 (weekly basis) to investigate the volatility association including the volatility spillover effect in the three markets.FindingsThe main findings of the study focus on having a long-term conditional correlation between gold and interest rates, but there is no evidence of volatility spillover from gold and crude oil on the interest rates. The findings of the study are of great importance especially to the policymakers, as they state that the fluctuations in prices of gold and crude oil do not adversely impact the interest rates in India. Therefore, the fluctuations in prices of gold and crude may generally impact the economy, but it has nothing to do with interest rate in particular. This implies that domestic and foreign investments in the country will not be affected by gold and crude oil that are largely driven by interest rates in the country.Practical implicationsGold and crude oil are two very important commodities that have their importance not only for domestic affairs but also for international business. They veritably influence the economy including forex exchange for any nation. In addition to this, the researchers believe the findings will provide insights to policymakers, stakeholders and investors.Originality/valueGold and crude oil undoubtedly influence the exchange rates but their impact on the interest rates in an economy is not definite and remains ambiguous owing to the mixed findings of the studies. The lack of studies related to the impact of gold and crude oil on the interest rates, despite them being essentials for the health of any economy is the main motivation of this study. This study is novel as it investigates the volatility impact of crude oil and gold on interest rates and contributes to the existing literature with its findings.

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