ICAAP

Modeling economic networks and their dynamics

Economic networks are the primary abstractions though which we can conceptualize the state (condition) and evolution of economic interactions. This simply reflects the fact that human economies are quite fundamentally systems of interacting actors (or nodes in a network) with transient or more permanent relations between them.

Limit frameworks are fundamental tools for risk management

A Limit Framework is a set of policies used by financial institutions (or other firms that actively assume quantifiable risks) to govern in a quantitative manner the maximum risk exposure permitted for an individual, trading desk, business line etc.

Why do we need limit frameworks? A limit framework is expressing in concrete terms the Risk Appetite of an institution to assume certain risks. The operational assumption is that staying within the risk limits defined by the framework is consistent with the degree of risk the firm is willing to accept while pursuing its business model. Limit frameworks offer the necessary flexibility demanded both by risk takers (the persons within the firm that undertake or underwrite risky projects) and the variable market environment with its ever evolving set of risks and opportunities.

Release of version 0.4 of the Concentration Library adds Geographic / Industrial concentration indexes

Further building out the OpenCPM set of tools, we release version 0.4 of the Concentration Library, a python library for the computation of various concentration, diversification and inequality indices.

The below list provides documentation URL’s for each one of the implemented classic indexes (the Hoover index is a new addition in this release)

Release of version 0.3 of the ConcentrationMetrics Library

Further building out the OpenCPM set of tools, we release version 0.3 of the ConcentrationMetrics Library. This python library for the computation of various concentration, diversification and inequality indices.

The below list provides documentation URL’s for each one of the implemented indexes

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.

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.

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:

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
• The measurement of credit name or sector concentrations using basic indicators and indexes
• The measurement of credit name or sector concentrations using more advanced (risk based) indicators

The courses run from Oct 7th till Oct 13th. Read more about prerequisites for the courses here:

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

Building out further the Open Risk Academy curriculum around Credit Risk Concentration management, we just added a course on sector concentration.

We just added a new course at the Open Risk Academy!

The course covers name concentration risk measurement, chiefly the construction of suitable metrics based on portfolio data (Free registration is required for this course)

The first batch of open source tools focusing on Credit Portfolio calculations is now available here. The functionality aims to standardize Name Concentration Measurement (concentrationMetrics)