Counterparty credit risk (CCR) is the risk that a counterparty in a deal will not be able to meet their contractual obligations in the future. While CCR is an important task for any risk desk, it has often been underestimated due to the miss-conception that some counterparties were deemed to be either too big to fail or too big to be allowed to default. This was highlighted by the 2008 nancial crisis that saw respected banks, such as Lehman Brothers, and nancial service providers, such as AIG, default on their obligations. Since then there has been renewed interest in CCR, with the focus being on actively pricing and hedging it. In this work CCR is invistigated including its intersection with other forms of risk. CCR mitigation techniques are explored, followed by the formal quanti cation of CCR in the form of credit value adjustments (CVA). The analysis of CCR is then applied to interest rate derivatives, more speci cally forward rate agreements (FRAs) and interest rate swaps (IRSs). The e ect of correlation on unilateral and bilateral CVA between counterparties, including risk factors such as the interest rate, is investigated. This is invistigated under two credit risk modelling frameworks, the structural and intensity based frameworks. It is shown that correlation has a none-negligible e ect on both unilateral and bilateral CVA for FRAs and IRSs. Correlation structures, namely the Gaussian and the Student-t copula, are used to induce dependency in order to understand their e ect on both unilateral and bilateral CVA. It is shown that the choice of copula does not have signi cant e ect on either unilateral or bilateral CVA.

University of Macau / Faculty of Science and Technology. / Department of Civil and Environmental Engineering

This thesis studies two subareas within the forecasting literature: volatility forecasting and risk-neutral density estimation and asks the question of how accurate volatility forecasts and risk-neutral density estimates can be made based on the given information. Two sources of information are employed to make those forecasts: historical information contained in time series of asset prices, and forward-looking information embedded in prices of traded options. Chapter 2 tests the comparative performance of two volatility scaling laws - the square-root-of-time (√T) and an empirical law, TH, characterized by the Hurst exponent (H) - where volatility is measured by sample standard deviation of returns, for forecasting the volatility term structure of crude oil price changes and ten foreign currency changes. We find that the empirical law is overall superior for crude oil, whereas the selection of a superior model is currency-specific and relative performance substantially differs across currencies. Our results are particularly important for regulatory risk management using Value-at-Risk and suggest the use of empirical law for volatility and quantile scaling. Chapter 3 studies the predictive ability of corridor implied volatility (CIV) measure. By adding CIV measures to the modified GARCH specifications, we show that narrow and mid-range CIVs outperform the wide CIVs, market volatility index and the BlackScholes implied volatility for horizons up to 21 days under various market conditions. Results of simulated trading reinforce our statistical findings. Chapter 4 compares six estimation methods for extracting risk-neutral densities (RND) from option prices. By using a pseudo-price based simulation, we find that the positive convolution approximation method provides the best performance, while mixture of two lognormals is the worst; In addition, we show that both price and volatility jumps are important components for option pricing. Our results have practical applications for policymakers as RNDs are important indicators to gauge market sentiment and expectations.

Li Chin Pang. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2006. / Includes bibliographical references (leaves 64-66). / Abstracts in English and Chinese. / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Structural Models of Credit Risk --- p.7 / Chapter 2.1 --- Barrier-Independent Models --- p.8 / Chapter 2.2 --- Barrier-Dependent Models --- p.9 / Chapter 2.3 --- Empirical Literature --- p.10 / Chapter 3 --- Jump-Diffusion Models --- p.13 / Chapter 3.1 --- Analytical Option Pricing Formula --- p.14 / Chapter 3.1.1 --- The Jump-Diffusion Model of Merton --- p.14 / Chapter 3.1.2 --- The Jump-Diffusion Model of Kou --- p.15 / Chapter 3.2 --- Simulation for Options --- p.19 / Chapter 3.2.1 --- Simulation for Barrier-Independent Options --- p.19 / Chapter 3.2.2 --- Brownian Bridge Simulation for DOC Option --- p.20 / Chapter 4 --- Likelihood Function for Equity Returns --- p.24 / Chapter 4.1 --- Likelihood Function on Equity Return --- p.26 / Chapter 4.2 --- Degeneracy Problem of Likelihood Function --- p.27 / Chapter 5 --- The Proposed Framework --- p.31 / Chapter 5.1 --- Penalized Likelihood Estimation --- p.31 / Chapter 5.2 --- Expectation-Maximization Algorithm --- p.36 / Chapter 5.3 --- The MJD Structural Model --- p.41 / Chapter 5.4 --- The K<JD Structural Model --- p.43 / Chapter 5.5 --- Computation of the E-step --- p.47 / Chapter 6 --- Performance of Estimation --- p.49 / Chapter 6.1 --- Simulation Checks --- p.49 / Chapter 6.2 --- Empirical Performance --- p.55 / Chapter 6.2.1 --- Bond Selection --- p.55 / Chapter 6.2.2 --- Empirical Results --- p.57 / Chapter 7 --- Conclusion --- p.62 / Bibliography --- p.64

This thesis focuses on the relationship between the real economy and the financial sector which gives rise to various amplification mechanisms known as financial accelerators. Historically, those channels are known to be in the roots of the world's largest crises such as the 2008 Great Recession. In its aftermath, policy-makers have undertaken various reforms that introduce macroprudential policy which focuses on the stability of the financial system as a whole. This thesis studies different financial amplification channels and the ability of macroprudential policy to mitigate their impact on the real economy in three chapters. The first chapter introduces different macroprudential tools into a macroeconomic framework with financial frictions and analyses their ability to mitigate the impact of a crisis originating from the financial sector to the real economy. The main finding of the paper is that sector specific tools can be effective if applied before the occurrence of the crisis, however, broader tools are much more effective once the crisis has spread to the economy. The second chapter expands the framework of the previous one, in order to provide a realistic representation of the current regulatory setting for capital requirements - the Internal Rating Based approach. The paper then studies the ability of the regulation to lead to procyclical capital requirements and thus amplify the business cycle and reduce social welfare. In order to avoid these consequences, an alternative policy rule is proposed which is able to mitigate the amplification effects. The third chapter focuses on the founding theory behind the current regulatory framework - the portfolio loss distribution (Vasicek, 2002) and expands it by introducing macroeconomic amplification mechanisms known as financial accelerators. The resulting portfolio distribution shows large losses to be substantially more likely which increases the fragility of the financial system and the amount of capital necessary to maintain its stability.

現代風險管理需要對金融產品的相關結構做出刻畫，而在實際生活中，我們通常使用相關係數和自相關係數去刻畫這種結構。然而，越來越多的人意識到自相關函數在度量相關結構上面被高估了，特別是在風險管理中我們更關心極端事件。同樣的，偏自相關函數也有這樣的短板。在這篇論文中，我們在有限維分佈服從有正尾係數的正則變差的嚴平穩過程上定義了Partial Extremogram。 這個指標僅僅依賴於隨機過程中的極端值。我們給出了它的一個估計并且研究了這個估計的漸進性質。此外，为了刻畫时间序列的負相關結構，我們把 Inverse Tail Dependence 的想法推廣到了隨機過程上面並且引入了Inverse Extremogram 的概念。我們給出了Inverse Extremogram 在ARMA模型中的顯示表達式。理論推導和數據模擬都說明這個指標可以很好的刻畫出一個隨機過程的尾部的負相關結構。 / Modern risk management calls for deeper understanding of the dependence structure of financial products, which is usually measured by correlation or autocorrelation functions. More and more people realized that autocorrelation function is overvalued as a tool to measure dependence, especially when one has to deal with extremal events in risk management. Likewise, partial autocorrelation function also suffers similar shortcomings as autocorrelation function. In this thesis, an analog of the partial autocorrelation function for a strictly stationary sequence of random variables whose finite-dimensional distributions are jointly regularly varying with positive index, the partial extremogram, is introduced. This function only depends on the extremal events of the underlying process. A natural estimator of the partial extremogram is also proposed and its asymptotic properties are studied. Furthermore, to measure the negative dependence of a time series, the idea of inverse tail dependence is extended to a stochastic process and the notion of inverse extremogram is proposed. A closed form of the inverse extremogram for an ARMA model is deduced. The theoretical and simulation results show that the inverse extremogram is a useful tool for measuring the negative tail dependence of a process. / Detailed summary in vernacular field only. / Chen, Pengcheng. / Thesis (Ph.D.)--Chinese University of Hong Kong, 2013. / Includes bibliographical references (leaves 53-56). / Abstracts also in Chinese. / Chapter 1 --- Introduction --- p.1 / Chapter 1.1 --- Tail Dependence --- p.2 / Chapter 1.2 --- Extremogram --- p.4 / Chapter 1.2.1 --- Regularly Varying Time Series --- p.4 / Chapter 1.2.2 --- Extremogram for Regularly Varying Time Series --- p.7 / Chapter 1.3 --- Motivation and Organization --- p.8 / Chapter 2 --- Partial Extremogram --- p.9 / Chapter 2.1 --- Definition of Partial Extremogram --- p.9 / Chapter 2.2 --- Applications of Partial Extremogram --- p.15 / Chapter 2.2.1 --- AR(1) Process --- p.15 / Chapter 2.2.2 --- MA(1) process --- p.17 / Chapter 2.2.3 --- Stochastic Volatility Model --- p.19 / Chapter 2.3 --- Estimation of Partial Extremogram --- p.19 / Chapter 2.4 --- Simulation Study --- p.22 / Chapter 3 --- Inverse Extremogram --- p.28 / Chapter 3.1 --- Definition of Inverse Extremogram --- p.28 / Chapter 3.2 --- Applications of Inverse Extremogram --- p.29 / Chapter 3.2.1 --- MA(q) Model --- p.29 / Chapter 3.2.2 --- MA(∞) Model --- p.35 / Chapter 3.2.3 --- ARMA Model --- p.40 / Chapter 3.2.4 --- GARCH Model and SV Model --- p.41 / Chapter 3.3 --- Simulation Study --- p.42 / Chapter 4 --- Conclusions and Further Research --- p.50 / Bibliography --- p.53

This thesis develops a new framework for explaining the effects and possible trajectories of state building interventions (SBIs). This is for both examining specific interventions and learning about the precise nature of the post-Cold War global order – how power is distributed, exercised, constrained and challenged within and between states. In the post-Cold War years, but particularly since the September 11 2001 terrorist attacks, so-called failed states have become a central security concern for policymakers. In tandem, there has been an influx of practitioner and scholarly interest in international ‘state building’. Prevalent approaches to state building are premised on a static conception of the state and therefore seek to evaluate SBIs in terms of whether they help create ‘more’ or ‘less’ state. In contrast, this thesis examines SBIs as a new mode of governance in the global political economy that is transformative of both intervened and intervening states, leading to the creation of a transnationalising and transnationally regulated form of statehood. Based on a conception of the state as a site of social and political struggle this study examines the ways in which SBIs affect the distribution, production and reproduction of political power in intervened states: Who rules and how? What social and political conflicts are engendered or exacerbated by SBIs, and how are they managed? What alliances and coalitions support the production/reproduction of power relationships associated with SBIs? The thesis provides a conceptual framework for understanding the complex governance terrain SBIs open up. SBIs are conceptualised as multilevel regimes – sets of social and political relationships, institutions and ideas – that exist simultaneously within and outside intervened states. While preserving the formal sovereignty of intervened states, these regimes are nevertheless established to shape political outcomes by limiting the political choices available to domestic leaders. This is operationalised by opening up and shifting power to multilevel spaces of governance within the apparatus of these countries. Through case studies from Australia, Solomon Islands and Cambodia, the thesis analyses the politics of SBIs and their broader implications for contemporary statehood. Ultimately it establishes that regardless of whether SBIs are successful or otherwise in achieving their stated objectives they are associated with the emergence of increasingly authoritarian, hierarchical and anti-competitive forms of political rule, both within and between states.

<p><strong>Introduction:</strong> Recent years’ globalization and expanding currency markets have increased the importance of financial managers.  A multinational company handles different currencies through export and imports, and is thus exposed to currency fluctuations. Awareness and assessment of risk management are issues more important not to ignore.</p><p><strong>Research question:</strong> <em>How does the multinational company SCA indentify currency risk exposure, and how does the financial management relate to it?</em></p><p><strong>Purpose:</strong> The aim of this study is to get a deeper understanding of the currency risk management at a Swedish multinational company and how the individual manager identifies exposure. Furthermore, what means that exist for assessing the exposure and how the management choose to reduce the risk will be investigated.</p><p><strong>Method:</strong> This case study has a qualitative approach, and is mainly based on two unstructured interviews that have been conducted with the financial mangers of SCA.</p><p><strong>Findings:</strong> The authors found that SCA identifies different kinds of exposures related to currency risk. SCA is equipped with organizational strategies as well as practical methods for reducing the risk exposure and positioning themselves in line with company framework and policies.</p><p><strong>Conclusion</strong>:                   Currency risk management is a subject of great complexity since exposures interrelate and alternates with time and as global economy changes. A company could hold a framework of policies, strategies and instruments that will provide their financial managers with means for risk assessment and management. Ultimately the responsibility is still in the hand of the managers.</p>

<p>Sammanfattning</p><p>Syftet med studien var att undersöka hur fastighetsbolag värderar historisk ekonomisk</p><p>information och information från kompletterande källor vid kreditbedömning av aktiebolag</p><p>som hyresgäster. Utgångspunkten för studien var att de på grund av den komplexa</p><p>kreditgivningen fastighetsbolagen har, så måste de ta hänsyn till en rad faktorer. Förutom att</p><p>ta hänsyn till historisk ekonomisk information, så bör fastighetsbolagen även ta hänsyn till</p><p>ickefinansiella källor som t.ex. hyresgästens affärsidé och hyresgästens kompetens som</p><p>företagsledare. Vi ville även undersöka om det fanns upparbetade rutiner för</p><p>kreditbedömningen och om fastighetsbolagen gjorde skillnad vid kreditbedömningen av</p><p>nystartade och etablerade företag. I studien undersökte vi förekomsten av upparbetade rutiner</p><p>för kreditbedömningen i fastighetsbolagen och om kreditgivaren gör skillnad i</p><p>kreditbedömningen av nystartade respektive etablerade företag. För att besvara</p><p>frågeställningen genomfördes semistrukturerade intervjuer med de tre personer som gör</p><p>kreditbedömningarna på respektive fastighetsbolag. Alla fastighetsbolag är för övrigt</p><p>verksamma i Östersundsområdet. Studien visar att fastighetsbolagen inte tillämpar hela det</p><p>teoretiska underlaget vid kreditbedömningen. Även kreditbedömarens utbildnings- och</p><p>yrkesbakgrund påverkar valet av information. En annan slutsats är att fastighetsbolagen vid</p><p>kreditbedömningen av nystartade företag, baserar kreditbedömningen på ickefinansiella</p><p>källor. Dessa källor kan vara till exempel rekommendationer från respondentens</p><p>kontaktnätverk eller bedömning av den presumtive hyresgästens marknadsplan eller budget.</p><p>Undersökningen visar att det, ur ett ägar- och koncernperspektiv, finns skillnader i rutiner och</p><p>kredithanteringspolicys. Vi anser att fastighetsbolagen är reducerat rationella med</p><p>kreditbedömningsprocessen, och att de i första hand väljer att prioritera andra riskfaktorer.</p> / <p>Abstract</p><p>The purpose with this essay was to investigate how real estate companys, value historical</p><p>economic information and information from other sources at credit appraisal of corporation as</p><p>tenants. The starting point of the study was as a result of the complexed granting of credits the</p><p>real estate company has, which means they have to consider many factors. Other then</p><p>considering the historical economic information, the real estate company also should consider</p><p>non-financial sources such as tenant´s business idea and the tenant´s competence as a business</p><p>leader. We also wanted to investigate if the real estate companys had any policys or rutines</p><p>they had to follow in their credit analysis and if they make any different judgement in their</p><p>credit analysis between new- and already established companys. To answer these questions</p><p>we made three semistructured interviews with the person that makes the credit analysis at</p><p>each real estate company, which are all located in Östersund. The results of the investigation</p><p>show that the real estate companys doesn´t use all the theoretical basis there is, when they</p><p>make the credit analysis. The information they use and value depends on their backgrounds,</p><p>former experience and education. Another conclusion is that real estate companys at credit</p><p>analysis of a new started company base their credit analysis on non financial sources. These</p><p>sources could for example be recommendations from respondent´s network of contacts or the</p><p>judgemet of the presumptive tenant´s market plan or financial budget. The investigation also</p><p>shows that from an owner – and concernperspektive there´s divergence in rutines and credit</p><p>management policys. We consider that the real estate companys are reduced rational with the</p><p>credit management process and that they choose to prior other risk factors.</p>

The development process for complex system is typically iterative in nature. Among the critical decisions in managing such process involves deciding how to partition the system development into iterations. This paper proposes a mathematical model that captures the dynamics of such iterative process. The analysis of two special cases of the model provides an insight into how such decision should be made. / Singapore-MIT Alliance (SMA)