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.
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?
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.
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.
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. We also propose that the sensitivity of concentration indexes to growing concentration should be a defining criterion for adopting an index and explore the sensitivity of common indexes to changing portfolio concentrations. We show that this sensitivity can vary significantly between indexes for parametric families of portfolio distributions and hence selecting and using a simple concentration index should take this aspect carefully into consideration
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: