The challenge with historical credit data Historical credit data are vital for a host of credit portfolio management activities: Starting with assessment of the performance of different types of credits and all the way to the construction of sophisticated credit risk models. Such is the importance of data inputs that for risk models impacting significant decision making / external reporting there are even prescribed minimum requirements for the type and quality of necessary historical credit data.
Release of version 0.4.1 of the transitionMatrix package focuses on stressing transition matrices Further building the open source OpenCPM toolkit this realease of transitionMatrix features: Feature: Added functionality for conditioning multi-period transition matrices Training: Example calculation and visualization of conditional matrices Datasets: State space description and CGS mappings for top-6 credit rating agencies Conditional Transition Probabilities The calculation of conditional transition probabilities given an empirical transition matrix is a highly non-trivial task involving many modelling assumptions.
Release of version 0.4 of the transitionMatrix package Further building the open source OpenCPM toolkit this realease of transitionMatrix features: Feature: Added Aalen-Johansen Duration Estimator Documentation: Major overhaul of documentation, now targeting ReadTheDocs distribution Training: Streamlining of all examples Installation: Pypi and wheel installation options Datasets: Synthetic Datasets in long format Enjoy!
Credit Portfolio Management in the IFRS 9 / CECL and Stress Testing Era The post-crisis world presents portfolio managers with the significant challenge to asimilate in day-to-day management the variety of conceptual frameworks now simultaneously applicable in the assessment of portfolio credit risk: The first major strand is the widespread application of regulatory stress testing methodologies in the estimation of regulatory risk capital requirements The second major strand is the introduction of new accounting standards (IFRS 9 / CECL) for the measurement and disclosure of expected credit losses
The new IFRS 9 financial reporting standard IFRS 9 (and the closely related CECL) is a brand new financial reporting standard developed and approved by the International Accounting Standards Board (IASB). Strictly speaking IFRS 9 concerns only the accounting and reporting of financial instruments (e.g. bank loans and similar credit products). Yet the introduction of the IFRS 9 standard has significant repercussions beyond financial reporting, and touches e.g., bank risk management as well.
How to Stress Test Financial Weapons of Mass Destruction In recent decades we have been collectively spared the haunting images and existential anxiety provoked by the sight of detonating nuclear weapons for testing purposes – not to mention the increased levels of radiation in the atmosphere and other side-effects. This achievement is largely thanks to a series of treaties to control nuclear bomb testing that have been signed and enforced by most (unhappily not all) countries worldwide.
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.
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?
The periodic table of risk elements You know the periodic table of elements, even if you flunked your science courses! It is the large colorful and blocky table that hanged on every school’s classrooms before becoming yet another mobile app. The periodic table is one of the early and iconic achievements of science. It lists all the pure chemical elements found in nature, the building blocks of all possible material substances.
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.
The Stress Test Explorer is a web app developed by Open Riskto 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.
Light relief for the upcoming announcements of the ECB AQR / stress testing results…