Gerhard Schweimayer - Academia.edu (original) (raw)

Uploads

Papers by Gerhard Schweimayer

RePEc: Research Papers in Economics, Mar 1, 2004

The tremendous growth of markets for credit derivatives since the mid 1990's has raised questions... more The tremendous growth of markets for credit derivatives since the mid 1990's has raised questions regarding the role of these instruments in the banking industry which is heavily exposed to credit risk. However, while recent literature mainly focused on pricing and optimal decisions regarding volumes of credit derivatives the present paper centers the strategic role of these instruments in the competition between banking firms. We use a duopolistic version of the industrial organization approach to banking to find out that credit derivatives may influence banking competition. For this result to hold observability of the volume of credit derivatives held by banks is not necessary.

Social Science Research Network, 2003

The industrial organization approach to the microeconomics of banking augmented by uncertainty an... more The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large commercial bank. In a partial-analytic framework we distinguish between the probability of default and the loss given default, model different forms of derivatives, and derive hedge rules and strong and weak separation properties between deposit and loan decisions on the one hand and hedging decisions on the other. We also suggest how bank-specific macro derivatives could be designed from common macro indices which serve as underlyings of recently introduced financial products.

Amundi Institute, 2022

This paper investigates the possible impact of ESG Risk when incorporated into front office drive... more This paper investigates the possible impact of ESG Risk when incorporated into front office driven Fundamental Market Risk Measurement approaches. The main principle is that ESG risk is implicitly embedded in observable market risk factors, like share prices and credit spreads, and interprets ESG risk as an additional jump component to an ordinary GBM process. Thereby, this paper models dedicatedly the interdependency of economic entities over different industry sectors by using two correlation matrices for the continuous and jump part. These are used by a Gaussian Copula to generate respective correlated equity return movements over time. Further, hazard rates of possible jumps are taken as exogenously given, they are directly derived from Environmental Rating data. Thereby, the hazard rate and the mapped environmental rating carry both the interpretation of the Expected Number of Adverse Jumps during 250 trading days. It is also shown, how the portfolio risk-as measured by Value-at-Risk and Volatility-can be additively decomposed to the single position level, and each position level into the contribution of (1) Ordinary Market Risk, (2) Jump Correlation Risk, and (3) Pure Hazard Rate Jump Risk. In order to calibrate the model, we propose to clearly distinguish between Systematic Environmental risk-which is caused by the product-and Specific Environmental risk-that is caused by the production process. Further, we view a Company as the sum of its Economic Entities, where the activities of each entity belongs to one single economic sector. Each economic entity stands for a jump component in the jump diffusion model. The simulation results show that on a 250 trading day horizon Environmental Risk is on a diversified portfolio level only relevant for longer time horizons (e.g. greater than 50 days), or in case of stressed scenarios. Our simulations indicate, that environmental rating based Exclusion Lists and Exposure Limits on companies with low environmental rating, would already do the job of managing or-more precisely-efficiently restricting current ESG risk. Finally, we link ordinary GBM VaR with the VaR from our model, by a quadratic regression function, that gives very good estimation, based on the ordinary VaR figures and dependent on the Weighted Average Portfolio Hazard Rate and the Weighted Average Portfolio Jump-Correlation. 1 1 JEL classification: G17, Q5.

This paper investigates the possible impact of ESG Risk when incorporated into front office drive... more This paper investigates the possible impact of ESG Risk when incorporated into front office driven Fundamental Market Risk Measurement approaches. The main principle is that ESG risk is implicitly embedded in observable market risk factors, like share prices and credit spreads, and interprets ESG risk as an additional jump component to an ordinary GBM process. Thereby, this paper models dedicatedly the interdependency of economic entities over different industry sectors by using two correlation matrices for the continuous and jump part. These are used by a Gaussian Copula to generate respective correlated equity return movements over time. Further, hazard rates of possible jumps are taken as exogenously given, they are directly derived from Environmental Rating data. Thereby, the hazard rate and the mapped environmental rating carry both the interpretation of the Expected Number of Adverse Jumps during 250 trading days. It is also shown, how the portfolio risk-as measured by Value-at-Risk and Volatility-can be additively decomposed to the single position level, and each position level into the contribution of (1) Ordinary Market Risk, (2) Jump Correlation Risk, and (3) Pure Hazard Rate Jump Risk. In order to calibrate the model, we propose to clearly distinguish between Systematic Environmental risk-which is caused by the product-and Specific Environmental risk-that is caused by the production process. Further, we view a Company as the sum of its Economic Entities, where the activities of each entity belongs to one single economic sector. Each economic entity stands for a jump component in the jump diffusion model. The simulation results show that on a 250 trading day horizon Environmental Risk is on a diversified portfolio level only relevant for longer time horizons (e.g. greater than 50 days), or in case of stressed scenarios. Our simulations indicate, that environmental rating based Exclusion Lists and Exposure Limits on companies with low environmental rating, would already do the job of managing or-more precisely-efficiently restricting current ESG risk. Finally, we link ordinary GBM VaR with the VaR from our model, by a quadratic regression function, that gives very good estimation, based on the ordinary VaR figures and dependent on the Weighted Average Portfolio Hazard Rate and the Weighted Average Portfolio Jump-Correlation. 1 1 JEL classification: G17, Q5.

This paper investigates the possible impact of ESG Risk when incorporated into front office drive... more This paper investigates the possible impact of ESG Risk when incorporated into front office driven Fundamental Market Risk Measurement approaches. The main principle is that ESG risk is implicitly embedded in observable market risk factors, like share prices and credit spreads, and interprets ESG risk as an additional jump component to an ordinary GBM process. Thereby, this paper models dedicatedly the interdependency of economic entities over different industry sectors by using two correlation matrices for the continuous and jump part. These are used by a Gaussian Copula to generate respective correlated equity return movements over time. Further, hazard rates of possible jumps are taken as exogenously given, they are directly derived from Environmental Rating data. Thereby, the hazard rate and the mapped environmental rating carry both the interpretation of the Expected Number of Adverse Jumps during 250 trading days. It is also shown, how the portfolio risk-as measured by Value-at-Risk and Volatility-can be additively decomposed to the single position level, and each position level into the contribution of (1) Ordinary Market Risk, (2) Jump Correlation Risk, and (3) Pure Hazard Rate Jump Risk. In order to calibrate the model, we propose to clearly distinguish between Systematic Environmental risk-which is caused by the product-and Specific Environmental risk-that is caused by the production process. Further, we view a Company as the sum of its Economic Entities, where the activities of each entity belongs to one single economic sector. Each economic entity stands for a jump component in the jump diffusion model. The simulation results show that on a 250 trading day horizon Environmental Risk is on a diversified portfolio level only relevant for longer time horizons (e.g. greater than 50 days), or in case of stressed scenarios. Our simulations indicate, that environmental rating based Exclusion Lists and Exposure Limits on companies with low environmental rating, would already do the job of managing or-more precisely-efficiently restricting current ESG risk. Finally, we link ordinary GBM VaR with the VaR from our model, by a quadratic regression function, that gives very good estimation, based on the ordinary VaR figures and dependent on the Weighted Average Portfolio Hazard Rate and the Weighted Average Portfolio Jump-Correlation. 1 1 JEL classification: G17, Q5.

This paper explains some of the existing approaches to value CDO and NtD instruments. This is don... more This paper explains some of the existing approaches to value CDO and NtD instruments. This is done to such an extend that enables the practitioner with some mathematical background to implement a valuation model quickly. Thereby, not only unfunded CDOs but also Cash CDOs are considered. There is no need to consult the huge variety of literature on the pricing of unfunded CDOs, as the underlying concepts are sufficiently explained. While the valuation of unfunded CDOs is covered well in the literature there is to the knowledge of the author not much to find on how to approximate the sophisticated waterfall structures of Cash CDOs analytically to a sufficient extend. As concerns how the cash flows out of the underlying pool pour out into the waterfall structure there is also only a few sources that treat this issue. Within this article the focus is not only on how to circumvent the use of term structure models, but also the use of a term structure model to estimate future cash flows o...

Discussion Paper Series, Apr 1, 2004

The tremendous growth of markets for credit derivatives since the mid 1990's has raised questions... more The tremendous growth of markets for credit derivatives since the mid 1990's has raised questions regarding the role of these instruments in the banking industry which is heavily exposed to credit risk. However, while recent literature mainly focused on pricing and optimal decisions regarding volumes of credit derivatives the present paper centers the strategic role of these instruments in the competition between banking firms. We use a duopolistic version of the industrial organization approach to banking to find out that credit derivatives may influence banking competition. For this result to hold observability of the volume of credit derivatives held by banks is not necessary.

SSRN Electronic Journal, 2003

The industrial organization approach to the microeconomics of banking augmented by uncertainty an... more The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large commercial bank. In a partial-analytic framework we distinguish between the probability of default and the loss given default, model different forms of derivatives, and derive hedge rules and strong and weak separation properties between deposit and loan decisions on the one hand and hedging decisions on the other. We also suggest how bank-specific macro derivatives could be designed from common macro indices which serve as underlyings of recently introduced financial products.

RePEc: Research Papers in Economics, Mar 1, 2004

The tremendous growth of markets for credit derivatives since the mid 1990's has raised questions... more The tremendous growth of markets for credit derivatives since the mid 1990's has raised questions regarding the role of these instruments in the banking industry which is heavily exposed to credit risk. However, while recent literature mainly focused on pricing and optimal decisions regarding volumes of credit derivatives the present paper centers the strategic role of these instruments in the competition between banking firms. We use a duopolistic version of the industrial organization approach to banking to find out that credit derivatives may influence banking competition. For this result to hold observability of the volume of credit derivatives held by banks is not necessary.

Social Science Research Network, 2003

The industrial organization approach to the microeconomics of banking augmented by uncertainty an... more The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large commercial bank. In a partial-analytic framework we distinguish between the probability of default and the loss given default, model different forms of derivatives, and derive hedge rules and strong and weak separation properties between deposit and loan decisions on the one hand and hedging decisions on the other. We also suggest how bank-specific macro derivatives could be designed from common macro indices which serve as underlyings of recently introduced financial products.

Amundi Institute, 2022

This paper investigates the possible impact of ESG Risk when incorporated into front office drive... more This paper investigates the possible impact of ESG Risk when incorporated into front office driven Fundamental Market Risk Measurement approaches. The main principle is that ESG risk is implicitly embedded in observable market risk factors, like share prices and credit spreads, and interprets ESG risk as an additional jump component to an ordinary GBM process. Thereby, this paper models dedicatedly the interdependency of economic entities over different industry sectors by using two correlation matrices for the continuous and jump part. These are used by a Gaussian Copula to generate respective correlated equity return movements over time. Further, hazard rates of possible jumps are taken as exogenously given, they are directly derived from Environmental Rating data. Thereby, the hazard rate and the mapped environmental rating carry both the interpretation of the Expected Number of Adverse Jumps during 250 trading days. It is also shown, how the portfolio risk-as measured by Value-at-Risk and Volatility-can be additively decomposed to the single position level, and each position level into the contribution of (1) Ordinary Market Risk, (2) Jump Correlation Risk, and (3) Pure Hazard Rate Jump Risk. In order to calibrate the model, we propose to clearly distinguish between Systematic Environmental risk-which is caused by the product-and Specific Environmental risk-that is caused by the production process. Further, we view a Company as the sum of its Economic Entities, where the activities of each entity belongs to one single economic sector. Each economic entity stands for a jump component in the jump diffusion model. The simulation results show that on a 250 trading day horizon Environmental Risk is on a diversified portfolio level only relevant for longer time horizons (e.g. greater than 50 days), or in case of stressed scenarios. Our simulations indicate, that environmental rating based Exclusion Lists and Exposure Limits on companies with low environmental rating, would already do the job of managing or-more precisely-efficiently restricting current ESG risk. Finally, we link ordinary GBM VaR with the VaR from our model, by a quadratic regression function, that gives very good estimation, based on the ordinary VaR figures and dependent on the Weighted Average Portfolio Hazard Rate and the Weighted Average Portfolio Jump-Correlation. 1 1 JEL classification: G17, Q5.

This paper investigates the possible impact of ESG Risk when incorporated into front office drive... more This paper investigates the possible impact of ESG Risk when incorporated into front office driven Fundamental Market Risk Measurement approaches. The main principle is that ESG risk is implicitly embedded in observable market risk factors, like share prices and credit spreads, and interprets ESG risk as an additional jump component to an ordinary GBM process. Thereby, this paper models dedicatedly the interdependency of economic entities over different industry sectors by using two correlation matrices for the continuous and jump part. These are used by a Gaussian Copula to generate respective correlated equity return movements over time. Further, hazard rates of possible jumps are taken as exogenously given, they are directly derived from Environmental Rating data. Thereby, the hazard rate and the mapped environmental rating carry both the interpretation of the Expected Number of Adverse Jumps during 250 trading days. It is also shown, how the portfolio risk-as measured by Value-at-Risk and Volatility-can be additively decomposed to the single position level, and each position level into the contribution of (1) Ordinary Market Risk, (2) Jump Correlation Risk, and (3) Pure Hazard Rate Jump Risk. In order to calibrate the model, we propose to clearly distinguish between Systematic Environmental risk-which is caused by the product-and Specific Environmental risk-that is caused by the production process. Further, we view a Company as the sum of its Economic Entities, where the activities of each entity belongs to one single economic sector. Each economic entity stands for a jump component in the jump diffusion model. The simulation results show that on a 250 trading day horizon Environmental Risk is on a diversified portfolio level only relevant for longer time horizons (e.g. greater than 50 days), or in case of stressed scenarios. Our simulations indicate, that environmental rating based Exclusion Lists and Exposure Limits on companies with low environmental rating, would already do the job of managing or-more precisely-efficiently restricting current ESG risk. Finally, we link ordinary GBM VaR with the VaR from our model, by a quadratic regression function, that gives very good estimation, based on the ordinary VaR figures and dependent on the Weighted Average Portfolio Hazard Rate and the Weighted Average Portfolio Jump-Correlation. 1 1 JEL classification: G17, Q5.

This paper investigates the possible impact of ESG Risk when incorporated into front office drive... more This paper investigates the possible impact of ESG Risk when incorporated into front office driven Fundamental Market Risk Measurement approaches. The main principle is that ESG risk is implicitly embedded in observable market risk factors, like share prices and credit spreads, and interprets ESG risk as an additional jump component to an ordinary GBM process. Thereby, this paper models dedicatedly the interdependency of economic entities over different industry sectors by using two correlation matrices for the continuous and jump part. These are used by a Gaussian Copula to generate respective correlated equity return movements over time. Further, hazard rates of possible jumps are taken as exogenously given, they are directly derived from Environmental Rating data. Thereby, the hazard rate and the mapped environmental rating carry both the interpretation of the Expected Number of Adverse Jumps during 250 trading days. It is also shown, how the portfolio risk-as measured by Value-at-Risk and Volatility-can be additively decomposed to the single position level, and each position level into the contribution of (1) Ordinary Market Risk, (2) Jump Correlation Risk, and (3) Pure Hazard Rate Jump Risk. In order to calibrate the model, we propose to clearly distinguish between Systematic Environmental risk-which is caused by the product-and Specific Environmental risk-that is caused by the production process. Further, we view a Company as the sum of its Economic Entities, where the activities of each entity belongs to one single economic sector. Each economic entity stands for a jump component in the jump diffusion model. The simulation results show that on a 250 trading day horizon Environmental Risk is on a diversified portfolio level only relevant for longer time horizons (e.g. greater than 50 days), or in case of stressed scenarios. Our simulations indicate, that environmental rating based Exclusion Lists and Exposure Limits on companies with low environmental rating, would already do the job of managing or-more precisely-efficiently restricting current ESG risk. Finally, we link ordinary GBM VaR with the VaR from our model, by a quadratic regression function, that gives very good estimation, based on the ordinary VaR figures and dependent on the Weighted Average Portfolio Hazard Rate and the Weighted Average Portfolio Jump-Correlation. 1 1 JEL classification: G17, Q5.

This paper explains some of the existing approaches to value CDO and NtD instruments. This is don... more This paper explains some of the existing approaches to value CDO and NtD instruments. This is done to such an extend that enables the practitioner with some mathematical background to implement a valuation model quickly. Thereby, not only unfunded CDOs but also Cash CDOs are considered. There is no need to consult the huge variety of literature on the pricing of unfunded CDOs, as the underlying concepts are sufficiently explained. While the valuation of unfunded CDOs is covered well in the literature there is to the knowledge of the author not much to find on how to approximate the sophisticated waterfall structures of Cash CDOs analytically to a sufficient extend. As concerns how the cash flows out of the underlying pool pour out into the waterfall structure there is also only a few sources that treat this issue. Within this article the focus is not only on how to circumvent the use of term structure models, but also the use of a term structure model to estimate future cash flows o...

Discussion Paper Series, Apr 1, 2004

The tremendous growth of markets for credit derivatives since the mid 1990's has raised questions... more The tremendous growth of markets for credit derivatives since the mid 1990's has raised questions regarding the role of these instruments in the banking industry which is heavily exposed to credit risk. However, while recent literature mainly focused on pricing and optimal decisions regarding volumes of credit derivatives the present paper centers the strategic role of these instruments in the competition between banking firms. We use a duopolistic version of the industrial organization approach to banking to find out that credit derivatives may influence banking competition. For this result to hold observability of the volume of credit derivatives held by banks is not necessary.

SSRN Electronic Journal, 2003

The industrial organization approach to the microeconomics of banking augmented by uncertainty an... more The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large commercial bank. In a partial-analytic framework we distinguish between the probability of default and the loss given default, model different forms of derivatives, and derive hedge rules and strong and weak separation properties between deposit and loan decisions on the one hand and hedging decisions on the other. We also suggest how bank-specific macro derivatives could be designed from common macro indices which serve as underlyings of recently introduced financial products.