From Big Data, to Linked Data and Linked Models The big data problem:
As certainly as the sun will set today, the big data explosion will lead to a big clean-up mess How do we know? It is simply a case of history repeating. We only have to study the still smouldering last chapter of banking industry history. Currently banks are portrayed as something akin to the village idiot as far as technology adoption is concerned (and there is certainly a nugget of truth to this).
Open Risk White Paper 7: Risk Capital for Non-Performing Loans We develop a conceptual framework for risk capital calculation for portfolios of non-performing loans. In general banking practice, loans that pass a threshold of delinquency are declared non-performing and are provisioned. Yet there is a residual risk that the provisioning is not sufficient. This risk must be covered by capital buffers. The literature for risk capital requirements for NPL portfolios is very limited, which implies that Stress Testing and Internal Capital Adequacy Assessment (ICAAP) requirements for non-performing loans are harder to meet.
FX Lending Risk A stress testing methodology for analyzing FX lending risk. Extends standard credit risk modelling tools to capture the increased risks of FX lending in a consistent way
Financial Weapons of Mass Destruction Warren Buffet famously declared financial derivatives as weapons of mass destruction (although apparently this did not prohibit him from using them when convenient). The leverage afforded by such contracts, their potential complexity, or simply their novelty which may imply lack of understanding, are some reasons why one would classify them as potential contributors of systemic risk, which is a polished rephrasing of the more popular this sucker is going down quote.
Open Risk White Paper 6: Stress Testing Methodology for FX Lending We develop a simple methodology for stress testing portfolios of credit instruments classified as foreign exchange lending. Loans whose repayment schedule is denominated in a currency other than that of the borrower’s domestic currency are commonly seen in many jurisdictions and have a risk profile that is considerably more complicated than domestic currency loans. Yet the literature for credit risk assessment and stress testing of portfolios of such loans is very limited, which means that Stress Testing and Internal Capital Adequacy Assessment (ICAAP) requirements are harder to meet.
Business Model Risk - The Forgotten Risk Type Sustainable business models that demonstrate adequate profitability over long horizons are key to a healthy market economy. This applies to firms and organizations of any size and in any sector. But how do we determine what is sustainable and how can we tell a risky business structure from a stable one?
On the small-scale end of the size spectrum we have the domain of startups and SME’s.
Open Risk White Paper 5: Identification Framework for Business Model Risks We develop an analytical framework for the systematic identification of business model risks. The framework utilizes as a starting point a simplified business model schema known as the Business Model Canvas. We review each one of the elements of the schema in turn, identifying the main risk characteristics associated with each.
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Citation @ARTICLE{OpenRiskWhitePaper05, author = {P.
Open Risk API: Improved financial risk management through open data, open source and web technologies. This is a Presentation given at the TopQuants/DNB Autumn Meeting, Amsterdam, Nov 18, 2015.
Presentation at TopQuants 2015: Open Risk API Improved financial risk management through open data, open source and web technologies.
This is a Presentation given at the TopQuants/DNB Autumn Meeting, Amsterdam, Nov 18, 2015
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Source Code Open Risk API Citation @ARTICLE{OpenRiskWhitePaper00, author = {P. Papadopoulos}, year = {2015}, note = {\href{https://www.openriskmanagement.com/wp-content/uploads/2015/11/TopQuants2015.pdf}{Download URL}}, title = {{Presentation at TopQuants 2015: Open Risk API}}, journal = {Open Risk White Papers} }
Seven Heavens of Finance and the Open Risk API Back-to-basics is not salvation It has become trendy since the financial crisis to be wearing an anti-complexity hat in matters concerning the shape of the financial system. This is an understandable reaction to the entangled constructions that had sprung to existence in the hyper-leveraged markets of the naughty noughts.
Yet shifting through the ruminations and proclamations one cannot help but get the impression that there is a sort of denial of the complexity that underlies the real economy.
Open Risk White Paper 4: Open Risk Model Taxonomy We develop a taxonomy for risk models that aims to support an open source risk models framework. The proposal builds on and extends some commonly used risk taxonomies within financial services firms but introduces some significant new elements. We first review the motivation for risk taxonomies, the concepts and tools that are involved and some weaknesses of current schemes. We try also to clarify the link between risk models and risk taxonomies.
Unbundling the Banks: A How-To Guide Talk of unbundling the banks is all the rage these days (if we believe the chatter coming from fintech startups). Yet upon closer inspection one gets the feeling that these optimistic people might not necessarily know exactly what they are trying to unbundle, the true complexity of a medium-to-large bank, which in turn reflects, at least in part, the complexity of our modern Financial System .
Open Risk API If you work in financial risk management you will most likely recognize where the following sentence is coming from:
One of the most significant lessons learned from the global financial crisis that began in 2007 was that banks information technology (IT) and data architectures were inadequate to support the broad management of financial risks. This had severe consequences to the banks themselves and to the stability of the financial system as a whole For those lucky few risk managers not being affected by inadequate IT systems, the excerpt is from the Basel Committee’s Principles for effective risk data aggregation and risk reporting (2013).
Open Risk White Paper 3: Introducing the Open Risk API We develop a proposal for an open source application programming interface (API) that allows for the distributed development, deployment and use of financial risk models. The proposal aims to explore the following key question: how to integrate in a robust and trustworthy manner diverse risk modeling and risk data resources, contributed by multiple authors, using different technologies, and which very likely will evolve over time.
Open Risk White Paper 2: Confidence Capital: The Principle We review the structure of economic capital frameworks commonly used within financial institutions and identify why the derived capital metrics do not explicitly address the needs for maintaining ongoing confidence on the soundness of the firm. In the follow-up to the financial crisis the need for more explicit such tests has been highlighted by regulatory stress testing methodologies.
The likelihood and severity of a future ratings downgrade (as opposed to a default within the risk horizon) are the two key new risk appetite inputs required for the framework.
The mystery of the collapsed cathedral You walk to the center of an old city and you see its glorious cathedral lying in ruins. What in the world has happened here? Your investigative instinct goes into overdrive. This is not supposed to happen. Not in peacetime anyway. How can it be that this magnificent edifice, after gracing the town’s central square for who knows how many centuries, is now little more than a rubble pile in the center of town?
Revisiting simple concentration indexes Our white paper Revisiting simple concentration indexes reviews the definitions of widely used concentration metrics such as the concentration ratio, the HHI index and the Gini and clarify their meaning and relationships.
This new analytic framework helps clarify the apparent arbitrariness of simple concentration indexes and brings to the fore the underlying unifying concept behind these metrics, thereby enabling their more informed use in portfolio and risk management applications.
We review the definitions of widely used concentration metrics such as the concentration ratio, the HHI index and the Gini and clarify their meaning and relationships.
Open Risk White Paper 1: Revisiting Simple Concentration Indexes We review the definitions of widely used concentration metrics such as the concentration ratio, the HHI index and the Gini and clarify their meaning and relationships. This new analytic framework helps clarify the apparent arbitrariness of simple concentration indexes and brings to the fore the underlying unifying concept behind these metrics, thereby enabling their more informed use in portfolio and risk management applications.
Criteria for identifying simple, transparent and comparable securitisations (See BIS D304)
Our view is that securitisation is fundamental financial technology and there is no intrinsic technical reason why it could not be harnessed to best serve the functioning of modern economies.
We believe, though, that a comprehensive overhaul of historical securitisation practices is the best means of addressing the stigma that has been attached to it in the follow up to the recent financial crisis.
Open Risk Presentation summarizing the Public Beta Phase Overview of the motivation for initiating Open Risk and the solutions being delivered in the current phase.
Venue: Online Location: The world Time: September 18th 2014 Link to presentation: Open Risk Overview
The rationale for continuing with internal capital models in the Basel 3 world Overview of the challenges and opportunities offered by internal capital models (economic capital models) in the post-crisis era. Conference Presentation given at:
Venue: 2nd Annual Capital Modelling under Basel III (Marcus Evans Conference) Location: London Time: January 28th 2014 Link to presentation: Local file
