Special Issue "Applying Stochastic Models in Practice: Empirics and Numerics"

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: closed (30 June 2016)

Special Issue Editor

Guest Editor
Prof. Dr. Alexander Szimayer

Department of Business Administration, University Hamburg, Von-Melle-Park 5, 20146 Hamburg, Germany
Website | E-Mail
Interests: stochastic modeling; option pricing; stochastic control

Special Issue Information

Dear Colleagues,

The ongoing development of novel stochastic models is essential to better understand and quantify newly emerging risks in finance and insurance. To ensure the practical use of these models, it is of particular importance that potential users be equipped with tools necessary for estimation and/or calibration of a specific model, and with efficient numerical algorithms that employ a certain model for an ensuing application. Prominent examples for recent advances in stochastic modeling include models for extreme dependence in finance and insurance (credit contagion or clustering of natural disasters), the effect of lapse risk or longevity risk on insurance companies, and capital/credit/debt/funding value adjustments in finance. The aim of this Special Issue is to highlight empirical results and methods, as well as numerical algorithms related to novel stochastic models in finance and insurance with a focus on the application of such models in practice.

Prof. Dr. Alexander Szimayer
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All papers will be peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Risks is an international peer-reviewed open access quarterly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 350 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • Empirical Finance
  • Empirical Studies in Insurance
  • Numerical Methods in Finance
  • Numerical Methods in Insurance

Published Papers (7 papers)

View options order results:
result details:
Displaying articles 1-7
Export citation of selected articles as:

Research

Open AccessArticle Nested MC-Based Risk Measurement of Complex Portfolios: Acceleration and Energy Efficiency
Risks 2016, 4(4), 36; doi:10.3390/risks4040036
Received: 23 June 2016 / Revised: 28 September 2016 / Accepted: 12 October 2016 / Published: 18 October 2016
PDF Full-text (1910 KB) | HTML Full-text | XML Full-text
Abstract
Risk analysis and management currently have a strong presence in financial institutions, where high performance and energy efficiency are key requirements for acceleration systems, especially when it comes to intraday analysis. In this regard, we approach the estimation of the widely-employed portfolio risk
[...] Read more.
Risk analysis and management currently have a strong presence in financial institutions, where high performance and energy efficiency are key requirements for acceleration systems, especially when it comes to intraday analysis. In this regard, we approach the estimation of the widely-employed portfolio risk metrics value-at-risk (VaR) and conditional value-at-risk (cVaR) by means of nested Monte Carlo (MC) simulations. We do so by combining theory and software/hardware implementation. This allows us for the first time to investigate their performance on heterogeneous compute systems and across different compute platforms, namely central processing unit (CPU), many integrated core (MIC) architecture XeonPhi, graphics processing unit (GPU), and field-programmable gate array (FPGA). To this end, the OpenCL framework is employed to generate portable code, and the size of the simulations is scaled in order to evaluate variations in performance. Furthermore, we assess different parallelization schemes, and the targeted platforms are evaluated and compared in terms of runtime and energy efficiency. Our implementation also allowed us to derive a new algorithmic optimization regarding the generation of the required random number sequences. Moreover, we provide specific guidelines on how to properly handle these sequences in portable code, and on how to efficiently implement nested MC-based VaR and cVaR simulations on heterogeneous compute systems. Full article
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
Figures

Figure 1

Open AccessFeature PaperArticle Choosing Markovian Credit Migration Matrices by Nonlinear Optimization
Risks 2016, 4(3), 31; doi:10.3390/risks4030031
Received: 4 July 2016 / Revised: 12 August 2016 / Accepted: 22 August 2016 / Published: 30 August 2016
PDF Full-text (929 KB) | HTML Full-text | XML Full-text
Abstract
Transition matrices, containing credit risk information in the form of ratings based on discrete observations, are published annually by rating agencies. A substantial issue arises, as for higher rating classes practically no defaults are observed yielding default probabilities of zero. This does not
[...] Read more.
Transition matrices, containing credit risk information in the form of ratings based on discrete observations, are published annually by rating agencies. A substantial issue arises, as for higher rating classes practically no defaults are observed yielding default probabilities of zero. This does not always reflect reality. To circumvent this shortcoming, estimation techniques in continuous-time can be applied. However, raw default data may not be available at all or not in the desired granularity, leaving the practitioner to rely on given one-year transition matrices. Then, it becomes necessary to transform the one-year transition matrix to a generator matrix. This is known as the embedding problem and can be formulated as a nonlinear optimization problem, minimizing the distance between the exponential of a potential generator matrix and the annual transition matrix. So far, in credit risk-related literature, solving this problem directly has been avoided, but approximations have been preferred instead. In this paper, we show that this problem can be solved numerically with sufficient accuracy, thus rendering approximations unnecessary. Our direct approach via nonlinear optimization allows one to consider further credit risk-relevant constraints. We demonstrate that it is thus possible to choose a proper generator matrix with additional structural properties. Full article
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
Figures

Open AccessArticle Lead–Lag Relationship Using a Stop-and-Reverse-MinMax Process
Risks 2016, 4(3), 27; doi:10.3390/risks4030027
Received: 19 February 2016 / Revised: 24 June 2016 / Accepted: 4 July 2016 / Published: 7 July 2016
PDF Full-text (1159 KB) | HTML Full-text | XML Full-text
Abstract
The intermarket analysis, in particular the lead–lag relationship, plays an important role within financial markets. Therefore, a mathematical approach to be able to find interrelations between the price development of two different financial instruments is developed in this paper. Computing the differences of
[...] Read more.
The intermarket analysis, in particular the lead–lag relationship, plays an important role within financial markets. Therefore, a mathematical approach to be able to find interrelations between the price development of two different financial instruments is developed in this paper. Computing the differences of the relative positions of relevant local extrema of two charts, i.e., the local phase shifts of these price developments, gives us an empirical distribution on the unit circle. With the aid of directional statistics, such angular distributions are studied for many pairs of markets. It is shown that there are several very strongly correlated financial instruments in the field of foreign exchange, commodities and indexes. In some cases, one of the two markets is significantly ahead with respect to the relevant local extrema, i.e., there is a phase shift unequal to zero between them. Full article
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
Figures

Open AccessArticle Survey on Log-Normally Distributed Market-Technical Trend Data
Risks 2016, 4(3), 20; doi:10.3390/risks4030020
Received: 5 May 2016 / Revised: 20 June 2016 / Accepted: 23 June 2016 / Published: 4 July 2016
PDF Full-text (2861 KB) | HTML Full-text | XML Full-text
Abstract
In this survey, a short introduction of the recent discovery of log-normally-distributed market-technical trend data will be given. The results of the statistical evaluation of typical market-technical trend variables will be presented. It will be shown that the log-normal assumption fits better to
[...] Read more.
In this survey, a short introduction of the recent discovery of log-normally-distributed market-technical trend data will be given. The results of the statistical evaluation of typical market-technical trend variables will be presented. It will be shown that the log-normal assumption fits better to empirical trend data than to daily returns of stock prices. This enables one to mathematically evaluate trading systems depending on such variables. In this manner, a basic approach to an anti-cyclic trading system will be given as an example. Full article
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
Figures

Open AccessFeature PaperArticle Improving Convergence of Binomial Schemes and the Edgeworth Expansion
Risks 2016, 4(2), 15; doi:10.3390/risks4020015
Received: 12 April 2016 / Revised: 10 May 2016 / Accepted: 13 May 2016 / Published: 23 May 2016
PDF Full-text (523 KB) | HTML Full-text | XML Full-text
Abstract
Binomial trees are very popular in both theory and applications of option pricing. As they often suffer from an irregular convergence behavior, improving this is an important task. We build upon a new version of the Edgeworth expansion for lattice models to construct
[...] Read more.
Binomial trees are very popular in both theory and applications of option pricing. As they often suffer from an irregular convergence behavior, improving this is an important task. We build upon a new version of the Edgeworth expansion for lattice models to construct new and quickly converging binomial schemes with a particular application to barrier options. Full article
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
Figures

Open AccessArticle Inflation Protected Investment Strategies
Risks 2016, 4(2), 9; doi:10.3390/risks4020009
Received: 28 December 2015 / Revised: 20 March 2016 / Accepted: 21 March 2016 / Published: 28 March 2016
PDF Full-text (976 KB) | HTML Full-text | XML Full-text
Abstract
In this paper, a dynamic inflation-protected investment strategy is presented, which is based on traditional asset classes and Markov-switching models. Different stock market, as well as inflation regimes are identified, and within those regimes, the inflation hedging potential of stocks, bonds, real estate,
[...] Read more.
In this paper, a dynamic inflation-protected investment strategy is presented, which is based on traditional asset classes and Markov-switching models. Different stock market, as well as inflation regimes are identified, and within those regimes, the inflation hedging potential of stocks, bonds, real estate, commodities and gold are investigated. Within each regime, we determine optimal investment portfolios driven by the investment idea of protection from losses due to changing inflation if inflation is rising or high, but decoupling the performance from inflation if inflation is low. The results clearly indicate that these asset classes behave differently in different stock market and inflation regimes. Whereas in the long-run, we agree with the general opinion in the literature that stocks and bonds are a suitable hedge against inflation, we observe for short time horizons that the hedging potential of each asset class, especially of real estate and commodities, depend strongly on the state of the current market environment. Thus, our approach provides a possible explanation for different statements in the literature regarding the inflation hedging properties of these asset classes. A dynamic inflation-protected investment strategy is developed, which combines inflation protection and upside potential. This strategy outperforms standard buy-and-hold strategies, as well as the well-known 1 N -portfolio. Full article
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
Open AccessArticle Modified Munich Chain-Ladder Method
Risks 2015, 3(4), 624-646; doi:10.3390/risks3040624
Received: 30 September 2015 / Accepted: 1 December 2015 / Published: 21 December 2015
PDF Full-text (372 KB) | HTML Full-text | XML Full-text
Abstract
The Munich chain-ladder method for claims reserving was introduced by Quarg and Mack on an axiomatic basis. We analyze these axioms, and we define a modified Munich chain-ladder method which is based on an explicit stochastic model. This stochastic model then allows us
[...] Read more.
The Munich chain-ladder method for claims reserving was introduced by Quarg and Mack on an axiomatic basis. We analyze these axioms, and we define a modified Munich chain-ladder method which is based on an explicit stochastic model. This stochastic model then allows us to consider claims prediction and prediction uncertainty for the Munich chain-ladder method in a consistent way. Full article
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
Back to Top