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.
Visualizing the Stress of US Banks A recurring cycle of regulatory stress testing exercises has become the new normal in the banking world, at least on the two shores of the northern Atlantic. The periodicity of the European stress testing heartbeat has not yet been firmly established. Did we just miss a beat in 2015 (a so called palpitation) or will the European cycle have two (or more) years periodicity? Who knows.
Concentrating on Concentration Risk Senior economists such as Ben Bernanke were still studying the Great 30s Depression when the financial crisis struck in full force circa 2007. Given the complexity of the modern economic and financial landscape compared to the blessed good old days - we have no reports of FWMD (financial weapons of mass destruction) from back then - we can reasonably project that economists will be studying and pontificating on causes and remedies for the current crisis for the next 100 years or so
Securitisation versus Banking The ever elusive CMU dream There is(/was) renewed interest in EU-land over deepening a capital markets union, aka CMU. It is among the initiatives being pursued by the Commission in order to help accelerate growth in the European Union.
The initiative encompasses many elements, both around equity (shares) and debt markets. One important pillar of the CMU aims to re-launch some version of an EU securitisation market. This segment was never really defined in a EU-wide basis.
A mini course on risk management, its perils and the silver lining When talking about risk management, it is not very clear what we are talking about in broad terms, definitely not getting clearer when we start getting into the details and it is even not clear how to best use the (possibly flawed) insights we produce.
Yet that’s what we have at this stage and with lemons we do lemonade.
We changed the URL structure of the front page to improve readability. This change should not break any links to pages.
If you do notice a problem please let us know at info at openrisk dot eu
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 Source Risk Modeling Manifesto This post is a summary of a presentation given at the 2014 Autumn TopQuants Meeting, aka, the Open Source Risk Modeling Manifesto.
The dismal state of quantitative risk modeling The current framework of internal risk modeling at financial institutions has had a fatal triple stroke. We saw in quick sequence: market risk, operational risk, and credit risk measurement failures, covering practically all business models.
This fact left the science and art of quantitative risk modeling reeling under the crushing weight of empirical evidence.
In our personal lives, it is the balance between work and life, or the dreadful weight balance. In the professional sphere it might be the balance between debt and equity in the financial industry, or the balance between convenience and citizen privacy in the new tech industry, or the welfare of the many balanced against the property of the few, or finally the geopolitical balance of power of different peoples Balance ensures sustainability as it helps steer away from the risks that lurk at the extremes.
FuriousBanker(TM) helps you learn risk management concepts in a fun and engaging way. This educational game series for mobiles and tablets is developed by Open Risk to enable modern interactive elearning for people working (or aspiring to work) in financial risk management.
The first episode sees FuriousBanker facing The credit detox challenge:
Game instructions for FuriousBanker:
You Objective: You inherited a pretty toxic credit portfolio and your objective is to reduce the concentration, even while improving your profitability.
EU Risk Dashboard Released About the app The EU Risk Dashboard is a web app developed by Open Risk to assist with the exploration and understanding of the large number of economic indicators published by the ECB in its Statistical Data Warehouse. The app data are derived from the timeseries available in the Warehouse. Most readings in the currently selected series are monthly and update automatically when those become available at the Warehouse.
Financial Risk Modelling has suffered enormous setbacks in recent years, with all major strands of modelling (market, credit, operational risk) proven to have debilitating limitations. It is impossible to imagine a modern financial system that does not make extensive use of risk quantification tools, yet rebuilding confidence that these tools are fit-for-purpose will require significant changes. These need to improve governance, transparency, quality standards and in some areas even the development of completely new strands of modelling.
We are happy to publish the first installment of a trilogy that focuses on the risk factors that can turn any credit portfolio toxic.
The first topic is default correlation, a topic that is both core to understanding credit risk and much misunderstood.
Enjoy!
The Stress Test Explorer is a web app developed by Open Risk to assist with the exploration and understanding of the large number of results published by the European regulatory authorities (ECB/EBA) in connection with the 2014 Comprehensive Assessment exercise. The app is now live and freely accessible here.
Please note: The app is requires a modern browser to display graphics
In line with the beta testing status of the entire Open Risk website, this app may evolve, subject to user comments and feedback.
RegNews, the Regulatory News Aggregator With all the ongoing activity around financial regulation having a convenient aggregation point for the main news is an indispensable tool for financial risk managers. This prompted us to build and roll out the Regulatory News App (RegNews in short), which is now live and freely accessible here. The app is designed to be usable both on a desktop and mobile environment.
In line with the beta testing status of the entire Open Risk website, this app will evolve, subject to user comments and feedback!
As part of the public beta testing programme, two new Open Risk Academy courses are accessible absolutely free (and with no strings attached :-).
The courses are introductions to measuring credit name or sector concentrations in credit portfolios. They cover the following topics:
The concept of credit name or sector concentration - what it is and how it can be measured
The regulatory context and how the issue is covered by requirements and regulatory guidance
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
Can’t turn around, we have come this far by faith…
Open Risk is now open for public beta testing.
We’ll keep the site in public beta stage for as long as needed to smooth out the rough edges.
We got the first “like” on social media, the lucky first liker earned a lifetime membership award. Now we have to think of something suitable for the second and third, as winner takes all mentality is not in our world outlook.
