A guide to the validation and risk management of qua. In this paper we develop structural first passage models at1p and sbtv with timevarying volatility and characterized by high tractability, moving from the original work of brigo and tarenghi. Mathematical finance, and the journal of derivatives, and is the author of understanding and managing model risk. The models behaviour on parmalat data prior to default is analysed. Second conference on the mathematics of credit risk, princeton may 2324, 2008 credit index options. Massimo morini is head of credit models and coordinator of model research at imi bank of intesa san paolo. What type of risk from credit risk point of view will we have to take into consideration.
He has spent the last ten years inventing new models, implementing them, and helping practitioners in using them for buying, selling, and hedging derivatives. Politecnico di milano, may 10, 2018 smart contracts for derivatives and dvp massimo morini head of interest rate and credit models. Pdf download counterparty credit risk, collateral and funding. Massimo morini is head of interest rate and credit models at imi bank of intesa san paolo, where he also coordinates modelling research. Department of economics and business, aarhus university. Fed in 201112, which, for the first time, accurately defined model risk and provided a set of guidelines establishing the need for entities to develop a boardapproved framework to identify and manage this risk though not necessarily quantify it. Modern interest rates with collateral, funding and credit risk by marco bianchetti and massimo morini frankfurt. I recommend this book to any trader, risk manager or model validator to get a more deatiled understanding of how far you can go with a model and how to build up a.
Morini, massimo, one more model risk when using gaussian copula for risk management april 25, 2009. Modern interest rates with collateral, funding and credit. Cds market formulas and models damiano brigo credit models banca imi corso matteotti 6 20121 milano, italy damiano. Apr 10, 2019 model risk is a type of risk that occurs when a financial model used to measure a firms market risks or value transactions fails or performs inadequately. Vilen abramov a practical guide to market risk model. We introduce credit risk at market level, allowing for nofault standard rule and. Massimo morini is head of interest rate and credit models and coordinator of model research at imi bank of intesa san paolo. With pricing cases for all asset classes, by damiano brigo, massimo morini, andrea palla by downloading this soft data book counterparty. Massimo morini has provided a comprehensive and practical book on model risk that well covers the practitioners.
How rising level of extremism in europe will affect credit risk and incorporation of other factors to risk models. Here we introduce a series of five articles seeking to frame, define, and categorize business analytics model risk. Credit default swap calibration and counterparty risk valuation with a scenario based first passage model by damiano brigo of banca imi, and marco tarenghi of banca imi 226k pdf. Derman you may have not taken into account all the factors that affect valuation. He has spent the last ten years inventing new models, implementing them, and. Model risk is a type of risk that occurs when a financial model used to measure a firms market risks or value transactions fails or performs inadequately. Damiano brigo and massimo morini introduce firstpassage models with timevarying volatility and random default barriers, while illustrating their tractability, exact calibration and economic interpretation. One more model risk when using gaussian copula for risk management. In this paper we develop structural first passage models at1p and sbtv with timevarying volatility and characterized by high tractability, moving from the original work of brigo and tarenghi 2004, 2005 and brigo and morini 2006. Approach model risk is the risk of a significant difference between the marktomodel value of an instrument, and the price at which the same instrument is revealed to have traded in the market by r. He has spent the last ten years inventing new models, implementing them, and helping. Nov 15, 2009 in part 2 we study the mathematical representation of the interest rate market in the postcrisis reality.
Massimo morinis book offers a muchneeded resource for practitioners who want to deal with the invisible risks associated with the widespread use of. Model risk is a mustread for serious quantitative analysts, accountants, financial engineers and regulators. A model governance program provides the framework, oversight, and controls for conducting modeling activities and managing model risk. Approach model risk is the risk of a significant difference between the markto model value of an instrument, and the price at which the same instrument is revealed to have traded in the market by r. Cds market formulas and models imperial college london.
Something happens in the reality of the markets that reveals an element of unrealism of the model to be more relevant than previously. Understanding and managing model risk is a unique 360degree analysis of the subject, a muchneeded contribution in the aftermath of the credit crunch. Understanding and managing model risk wiley online books. Model risk, 2018 a practitioners point of view people. Model risk management14 published by the occ and the u. Massimo morini and andrea prampolini show that a consistent framework can only be achieved by giving an explicit representation to the funding strategy, including associated default risks. A practical guide for quants, traders and validators and other books on credit, funding and interest rate modelling. A practical guide for quants, traders and validators, by massimo morini, examines the risks arising. Massimo morini at universita commerciale luigi bocconi. Gaussian copula as a model for default correlation has been recently criticized for a. Massimo morini milan, italy is head of interest rate and credit models and coordinator of model research at imi bank of intesa san paolo. The value approach model risk is the risk that the model is not a realistic or at least plausible description of the factors that affect the derivatives value by e. Request pdf on jun 1, 2012, michael verhofen and others published massimo morini. Massimo morini a guide to the validation and risk management of quantitative models used for pricing and hedging whereas the majority of quantitative finance books focus on mathematics and risk.
In part 2 we study the mathematical representation of the interest rate market in the postcrisis reality. We introduce credit risk at market level, allowing for nofault standard rule and collateralization. Massimo morini, understanding and managing model risk. The value approach model risk is the risk that the model is not a realistic or at least plausible description of the factors that affect. Massimo morini milan, italy is head of interest rate and credit models and coordinator of model research at.
Derivatives, and is the author of understanding and managing model risk. The most thoughtful and yet practical book ive seen. Massimo morini author massimo morini is head of interest rate and credit models and coordinator of model research at imi bank of intesa san paolo. Cryptocurrency technology could revolutionise derivatives valuation and collateralisation, say massimo morini and robert sams many traders would blame regulation or patchy collateralisation for the.
Organizational strategy, business models, and risk. Massimo holds a phd in mathematics and an msc in economics. Collateral, rehypothecation, wwr, basel, funding, ccds and. Morini, massimo, one more model risk when using gaussian copula for risk. Massimo morini a guide to the validation and risk management of quantitative models used for pricing and hedging whereas the majority of quantitative finance books focus on mathematics and risk management books focus on regulatory aspects, this book addresses the elements missed by this literaturethe risks of the models themselves. Counterparty credit risk faq dialogue 8 and underlying equity, that would allow you to model wrong way risk wwr. Solving the puzzle in the interest rate market by massimo. Massimo is also professor of fixed income at bocconi university and was a. Massimo morini is head of interest rate and credit models at imi bank of intesa san paolo, where he is also coordinator of model research. With pricing cases for all asset classes, by damiano brigo, massimo morini, andrea palla by downloading this soft data book counterparty credit risk, collateral and funding. Cryptocurrency technology could revolutionise derivatives valuation and collateralisation, say massimo morini and robert sams many traders would blame regulation or patchy collateralisation for the pricing addons that are making the swap market more complex.
Massimo morini writes a very interesting book about shortcomings of some models that were used in the past and how these shortcomings triggered the developement of new models. Combining online training from worldrenowned expert instructors with a rich library of content for selfpaced, distance learning. Massimo holds a phd in mathematics and an msc in economics and is professor at bocconi university and msc director at milan polytechnic, and he was research. Introduction to a series of five articles on model risk. Massimo is also professor of fixed income at bocconi university and was a research fellow at cass. Gaussian copula as a model for default correlation has been recently criticized for a number of fallacies in its application to pricing and risk management of financial liabilities. Credit default swap calibration and counterparty risk valuation with a scenario based first passage model by damiano brigo of banca imi, and marco tarenghi of banca imi 226k pdf 22 pages april 29, 2005.