Documents disponibles écrits par cet auteur

Constant proportion debt obligations / Michael B. Gordy in Management science, Vol. 58 N° 3 (Mars 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 3 (Mars 2012) . - pp. 476-492 Titre : Constant proportion debt obligations : A postmortem analysis of rating models Type de document : texte imprimé Auteurs : Michael B. Gordy, Auteur ; Søren Willemann, Auteur Année de publication : 2012 Article en page(s) : pp. 476-492 Note générale : Management Langues : Anglais (eng) Mots-clés : Credit  risk  Securitization  Structured  credit  Rating  agencies  Stochastic  volatility Résumé : In its complexity and its vulnerability to market volatility, the constant proportion debt obligation (CPDO) might be viewed as the poster child for the excesses of financial engineering in the credit market. This paper examines the CPDO as a case study in model risk in the rating of complex structured products. We demonstrate that the models used by Standard and Poor's (S&P) and Moody's fail in-sample specification tests even during the precrisis period and in particular understate the kurtosis of spread changes. Because stochastic volatility is the most natural explanation for the excess kurtosis, we estimate an extended version of the S&P model with stochastic volatility and find that the volatility-of-volatility is large and significant. An implication is that agency model-implied probabilities of attaining high spread levels were biased downward, which in turn biased the rating upward. We conclude with larger lessons for the rating of complex products and for modeling credit risk in general. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/3.toc [article] Constant proportion debt obligations : A postmortem analysis of rating models [texte imprimé] / Michael B. Gordy, Auteur ; Søren Willemann, Auteur . - 2012 . - pp. 476-492. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 3 (Mars 2012) . - pp. 476-492 Mots-clés : Credit  risk  Securitization  Structured  credit  Rating  agencies  Stochastic  volatility Résumé : In its complexity and its vulnerability to market volatility, the constant proportion debt obligation (CPDO) might be viewed as the poster child for the excesses of financial engineering in the credit market. This paper examines the CPDO as a case study in model risk in the rating of complex structured products. We demonstrate that the models used by Standard and Poor's (S&P) and Moody's fail in-sample specification tests even during the precrisis period and in particular understate the kurtosis of spread changes. Because stochastic volatility is the most natural explanation for the excess kurtosis, we estimate an extended version of the S&P model with stochastic volatility and find that the volatility-of-volatility is large and significant. An implication is that agency model-implied probabilities of attaining high spread levels were biased downward, which in turn biased the rating upward. We conclude with larger lessons for the rating of complex products and for modeling credit risk in general. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/3.toc

Nested simulation in portfolio risk measurement / Michael B. Gordy in Management science, Vol. 56 N° 10 (Octobre 2010) 

Public ISBD [article]  in Management science > Vol. 56 N° 10 (Octobre 2010) . - pp. 1833-1848 Titre : Nested simulation in portfolio risk measurement Type de document : texte imprimé Auteurs : Michael B. Gordy, Auteur ; Sandeep Juneja, Auteur Année de publication : 2010 Article en page(s) : pp. 1833-1848 Note générale : Management Langues : Anglais (eng) Mots-clés : Nested  simulation  Loss  distribution  Value-at-risk  Expected  shortfall  Jackknife  estimator Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : Risk measurement for derivative portfolios almost invariably calls for nested simulation. In the outer step, one draws realizations of all risk factors up to the horizon, and in the inner step, one reprices each instrument in the portfolio at the horizon conditional on the drawn risk factors. Practitioners may perceive the computational burden of such nested schemes to be unacceptable and adopt a variety of second-best pricing techniques to avoid the inner simulation. In this paper, we question whether such short cuts are necessary. We show that a relatively small number of trials in the inner step can yield accurate estimates, and we analyze how a fixed computational budget may be allocated to the inner and the outer step to minimize the mean square error of the resultant estimator. Finally, we introduce a jackknife procedure for bias reduction. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/56/10/1833 [article] Nested simulation in portfolio risk measurement [texte imprimé] / Michael B. Gordy, Auteur ; Sandeep Juneja, Auteur . - 2010 . - pp. 1833-1848. Management Langues : Anglais (eng) in Management science > Vol. 56 N° 10 (Octobre 2010) . - pp. 1833-1848 Mots-clés : Nested  simulation  Loss  distribution  Value-at-risk  Expected  shortfall  Jackknife  estimator Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : Risk measurement for derivative portfolios almost invariably calls for nested simulation. In the outer step, one draws realizations of all risk factors up to the horizon, and in the inner step, one reprices each instrument in the portfolio at the horizon conditional on the drawn risk factors. Practitioners may perceive the computational burden of such nested schemes to be unacceptable and adopt a variety of second-best pricing techniques to avoid the inner simulation. In this paper, we question whether such short cuts are necessary. We show that a relatively small number of trials in the inner step can yield accurate estimates, and we analyze how a fixed computational budget may be allocated to the inner and the outer step to minimize the mean square error of the resultant estimator. Finally, we introduce a jackknife procedure for bias reduction. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/56/10/1833