On the calibration of distortion risk measures to bid-ask prices

We investigate the calibration of a non-linear pricing model to quoted bid-ask prices and show the existence of a solution in a broad class of distortion risk measures, following the frameworks of Cherny and Madan [Int. J. Theor. Appl. Financ., 2010, 13(8), 1149–1177] and Bannör and Scherer [Eur. Actuarial J., 2013, 3(1), 97–132]. We present an approximation of distortion risk measures by a piecewise linear approximation of concave distortions. This is used to construct a tractable non-parametric calibration procedure to bid-ask prices based on piecewise linear concave distortion functions. To analyze the specific structure of distortion functions, we calibrate quoted bid-ask prices non-parametrically and w.r.t. parametric families and obtain a jump-linear structure. Hence, we suggest considering the parametric family of ript>rc="/na101/home/literatum/publisher/tandf/journals/content/rquf20/2014/rquf20.v014.i07/14697688.2014.887220/20140616/images/rquf_a_887220_o_ilm0001.gif" alt=" />ript>rc="//:0" alt=" class="no-mml-formula" data-formula-source="{"type" : "image", "src" : "/na101/home/literatum/publisher/tandf/journals/content/rquf20/2014/rquf20.v014.i07/14697688.2014.887220/20140616/images/rquf_a_887220_o_ilm0001.gif"}" />-expectation convex combinations as a possible family of distortion functions. This family allows fast and efficient calibration and has an appealing economic interpretation.     

Systematic stress tests with entropic plausibility constraints

Stress tests with handpicked scenarios might misrepresent risks either because dangerous scenarios are not considered or because the scenarios considered are too implausible. To overcome these two pitfalls we propose a systematic search for the worst case within a relative entropy ball of sufficiently plausible scenarios. For this purpose we use mixed scenarios, which are risk factor distributions rather than realisations. A Maximum Loss theorem explicitly gives the worst case distribution. The method is illustrated in a number of example applications: linear and quadratic portfolios, stressed default probabilities, stressed correlations, macroeconomic stress tests.     

A contribution to the theory of statistical estimation

1. The Estimation Problem.

In problems of statistical estimation, we are concerned with certain variables assumed to be random variables having more or less unknown probability distributions. A number of observed values of these variables are given, and it is required to use these values to learn something about the unknown distributions.     

Über das Makeham'sche Gesetz und das Zinsfussproblem bei der Leibrente

Abstract

In dem Folgenden werde ieh einige praktisehe Folgen einigen der vielen bis heute ersehienenen Arbeiten ü das MAKEHAM'sche Sterblichkeitsgesetz und das versicherungstechnische Problem bei Zinsänderungen andeuten. Es handelt sich um einige Zusammenstellungen für die praktische Verwendung einigen der vielen schönen theoretischen Resultaten in diesem Gebiete der Versicherungsmathematik; praktische Zusammenstellungen, die mir bekannt nicht früher klar ausgesprochen worden sind.     

Monitoring Financial Distress in a High-Stress Financial World: The Role of Option Prices as Bank Risk Metrics

The current financial crisis offers a unique opportunity to investigate the leading properties of market indicators in a stressed environment and their usefulness from a banking supervision perspective. One pool of relevant information that has been little explored in the empirical literature is the market for bank’s exchange-traded option contracts. In this paper, we first extract implied volatility indicators from the prices of option contracts on financial firms’ equity. We then examine empirically their ability to predict financial distress by applying survival analysis techniques to a sample of large US financial firms. We find that market indicators extracted from option prices significantly explain the survival time of troubled financial firms and do a better job in predicting financial distress than other time-varying covariates typically included in bank failure models. Overall, both accounting information and option prices contain useful information of subsequent financial problems and, more importantly, their combination produces good forecasts in a high-stress financial world.     

Analysing voting behaviour in the United States banking sector through eigenvalue decomposition

Using data about votes emitted by funds in corporate meetings held by US banks from 2003 to 2013, we propose a novel approach based on eigenvalue decomposition to address the issue of communality in voting decisions. Our results indicate that there is a main underlying feature that contributes to explain this voting behaviour. Also, a dimensionality reduction could be accomplished so that a subset of the original data can replicate the sample. These findings confirm that there may be a sort of homogeneous or systematic component when it comes to explain the voting pattern into the banking industry.     

A note on the valuation of asset management firms

Market capitalization relative to assets under management is often used to value asset management firms. Huberman’s (ref="#CR8">2004) dividend discount model implies that cross-sectional variations in this metric are explained by cross-sectional differences in operating margins, and yet we find no evidence of this in our data set. We show that a superior model—inspired by the work of Berk and Green (ref="#CR1">2004)—includes also the level of fees as an explanatory variable. This approach dramatically increases the fit of our valuation model and casts doubt on the relevance of the so-called Huberman puzzle.     

Managing in turbulence: how the capacity for resilience influences creativity

How do companies manage to compete in a marketplace marked by turbulence, and not be outcompeted? In our study we assess the resources used to create resilience in organizations and how each of these resources relates to organizational creativity. We show that organizational resilience is positively related to organizational creativity. Specifically, our study highlights that cognitive, emotional, and structural resources are important resources for organizations wanting to become creative. Our results are based upon a pilot in‐depth qualitative case study followed by a survey of medium‐sized firms. The results in our study advance the emergent literature on resilience and on the practical applications of resilience in organizations. From a practical point of view, managers may realize that they have to develop a capacity for resilience (i.e. what they have to do) in order to have a creative organization, but a far bigger challenge is to understand the how; how the capacity for resilience is built. Our research shows that if managers truly want to manage in turbulence and still have a creative organization, they need to put a strong emphasis on the soft skills in the organization, in addition to the structural resources.     

Random aggregation without the Pareto principle

Barberà-Sonnenschein (J Econ Theory 18:244–254, 1978) have shown that any binary and Paretian random social choice function can be associated with a mapping which associates a real number with each coalition of individuals. This function gives, for each coalition, the power that this group has in imposing on society, their common preference relation on a pair of alternatives. The aim of this paper is to extend this result, showing that the Pareto criterion is not a necessary condition for the existence of such a coalitional power function.     

Agent based model of a simple economy

This article proposes a model of a simple economy based on a set of agent-based modeling principles. The model is based on the ??trust game?? formulated by Berg et?al. (Games Econ Behav 10:122?C142, 1995), and anticipates a random matching of partners taking in to account adaptive agent behavior. Simulation in the NetLogo programming environment, using profile distributions obtained from empirical studies, has shown the most successful agents to posses low parameters of trust in the role of Sender and high parameters of trustworthiness in the role of Receiver.