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47
Anomaly Detection: A Survey
, 2007
"... Anomaly detection is an important problem that has been researched within diverse research areas and application domains. Many anomaly detection techniques have been specifically developed for certain application domains, while others are more generic. This survey tries to provide a structured and c ..."
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Anomaly detection is an important problem that has been researched within diverse research areas and application domains. Many anomaly detection techniques have been specifically developed for certain application domains, while others are more generic. This survey tries to provide a structured and comprehensive overview of the research on anomaly detection. We have grouped existing techniques into different categories based on the underlying approach adopted by each technique. For each category we have identified key assumptions, which are used by the techniques to differentiate between normal and anomalous behavior. When applying a given technique to a particular domain, these assumptions can be used as guidelines to assess the effectiveness of the technique in that domain. For each category, we provide a basic anomaly detection technique, and then show how the different existing techniques in that category are variants of the basic technique. This template provides an easier and succinct understanding of the techniques belonging to each category. Further, for each category, we identify the advantages and disadvantages of the techniques in that category. We also provide a discussion on the computational complexity of the techniques since it is an important issue in real application domains. We hope that this survey will provide a better understanding of the di®erent directions in which research has been done on this topic, and how techniques developed in one area can be applied in domains for which they were not intended to begin with.
Extreme Value Theory: Potential And Limitations As An Integrated Risk Management Tool
 Derivatives Use, Trading & Regulation
, 2000
"... . Extreme Value Theory (EVT) is currently very much in the focus of interest in quantitative risk management. Originally conceived as the mathematical (probabilistic/statistical) theory for analysing rare events, it recently entered the risk management stage. In this paper I discuss some of the i ..."
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Cited by 42 (0 self)
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. Extreme Value Theory (EVT) is currently very much in the focus of interest in quantitative risk management. Originally conceived as the mathematical (probabilistic/statistical) theory for analysing rare events, it recently entered the risk management stage. In this paper I discuss some of the issues (mainly, but not exclusively) related to Value{at{Risk methodology. I try to come up with a virtues versus limitations assessment, both from an academic as well as from an end{user point of view. 1. Introduction Without any doubt, Value{at{Risk (VaR) thinking has revolutionised Integrated Risk Management (IRM), both at the quantitative (obvious) and at the qualitative (not so obvious) level. Originally conceived as a one{number summary of (short term) Market Risk, it is now being used in many dierent risk management systems like Credit Risk (Credit{VaR) and Operational Risk. Even the insurance world which could claim, through its actuarial skills, to be the master of risk, has im...
An Application of Extreme Value Theory for Measuring Financial Risk
, 2006
"... Assessing the probability of rare and extreme events is an important issue in the risk management of financial portfolios. Extreme value theory provides the solid fundamentals needed for the statistical modelling of such events and the computation of extreme risk measures. The focus of the paper is ..."
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Cited by 30 (0 self)
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Assessing the probability of rare and extreme events is an important issue in the risk management of financial portfolios. Extreme value theory provides the solid fundamentals needed for the statistical modelling of such events and the computation of extreme risk measures. The focus of the paper is on the use of extreme value theory to compute tail risk measures and the related confidence intervals, applying it to several major stock market indices.
High volatility, thick tails and extreme value theory in valueatrisk estimation
 Insurance: Mathematics and Economics
, 2003
"... In this paper, the performance of the extreme value theory in ValueatRisk calculations is compared to the performances of other wellknown modeling techniques, such as GARCH, variancecovariance method and historical simulation in a volatile stock market. The models studied can be classified into ..."
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Cited by 23 (2 self)
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In this paper, the performance of the extreme value theory in ValueatRisk calculations is compared to the performances of other wellknown modeling techniques, such as GARCH, variancecovariance method and historical simulation in a volatile stock market. The models studied can be classified into two groups. The first group consists of GARCH(1,1) and GARCH(1,1)t models which yield highly volatile quantile forecasts. The other group, consisting of historical simulation, variancecovariance approach, adaptive generalized pareto distribution (GPD) and nonadaptive GPD models leads to more stable quantile forecasts. The quantile forecasts of GARCH(1,1) models are excessively volatilite relative to the GPD quantile forecasts. This makes the GPD model to be a robust quantile forecasting tool which is practical to implement and regulate for VaR measurements. Key Words: ValueatRisk, financial risk management, extreme value theory.
Overnight Borrowing, Interest Rates and Extreme Value Theory
, 2001
"... We examine the dynamics of extreme values of overnight borrowing rates in an interbank money market before a financial crisis during which overnight borrowing rates rocketed up to (simple annual) 4000 percent. It is shown that the generalized Pareto distribution fits well to the extreme values of t ..."
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Cited by 18 (4 self)
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We examine the dynamics of extreme values of overnight borrowing rates in an interbank money market before a financial crisis during which overnight borrowing rates rocketed up to (simple annual) 4000 percent. It is shown that the generalized Pareto distribution fits well to the extreme values of the interest rate distribution. We also provide predictions of extreme overnight borrowing rates before the crisis. The examination of tails (extreme values) provides answers to such issues as what are the extreme movements expected in financial markets; have we already seen the largest moves; is there a possibility for even larger movements and, are there theoretical processes that can model the type of fat tails in the observed data? The answers to such questions are essential for proper management of financial exposures and laying ground for regulations.
Is the potential for international diversification disappearing? Discussion Paper
, 2010
"... International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture longrun and shortrun dependence, multivariate nonnormality, and asymmetries in large crosssections. We find that correlations have increased markedly ..."
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Cited by 14 (1 self)
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International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture longrun and shortrun dependence, multivariate nonnormality, and asymmetries in large crosssections. We find that correlations have increased markedly in both developed markets (DMs) and emerging markets (EMs), but they are much lower in EMs than in DMs. Tail dependence has also increased, but its level is still relatively low in EMs. We propose new measures of dynamic diversification benefits that take into account higherorder moments and nonlinear dependence. The benefits from international diversification have reduced over time, drastically so for DMs. EMs still offer significant diversification benefits, especially during large market downturns. (JEL G12) Understanding and quantifying the evolution of security comovements is critical for asset pricing and portfolio allocation. The comovements between
Practical Methods for Measuring and Managing Operational Risk in the Financial Sector: A Clinical Study *
, 2006
"... This paper analyzes the implications of the Advanced Measurement Approach (AMA) for the assessment of operational risk. Through a clinical case study on a matrix of two selected business lines and two event types of a large financial institution, we develop a procedure that addresses the major issue ..."
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Cited by 9 (0 self)
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This paper analyzes the implications of the Advanced Measurement Approach (AMA) for the assessment of operational risk. Through a clinical case study on a matrix of two selected business lines and two event types of a large financial institution, we develop a procedure that addresses the major issues faced by banks in the implementation of the AMA. For each cell, we calibrate two truncated distributions functions, one for “normal ” losses and the other for the “extreme ” losses. In addition, we propose a method to include external data in the framework. We then estimate the impact of operational risk management on bank profitability, through an adapted measure of RAROC. The results suggest that substantial
The Pricing Puzzle: The Default Term Structure of Collateralised Loan Obligations
, 2002
"... Ambivalence in the regulatory definition of capital adequacy for credit risk has recently steered the financial services industry to collateral loan obligations (CLOs) as an important balance sheet management tool. CLOs represent a specialised form of AssetBacked Securitisation (ABS), with investor ..."
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Cited by 9 (0 self)
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Ambivalence in the regulatory definition of capital adequacy for credit risk has recently steered the financial services industry to collateral loan obligations (CLOs) as an important balance sheet management tool. CLOs represent a specialised form of AssetBacked Securitisation (ABS), with investors acquiring a structured claim on the interest proceeds generated from a portfolio of bank loans in the form of tranches with different seniority. By way of modelling Mertontype riskneutral asset returns of contingent claims on a multiasset portfolio of corporate loans in a CLO transaction, we analyse the optimal design of loan securitisation from the perspective of credit risk in potential collateral default. We propose a pricing model that draws on a careful simulation of expected loan loss based on parametric bootstrapping through extreme value theory (EVT). The analysis illustrates the dichotomous effect of loss cascading, as the most junior tranche of CLO transactions exhibits a distinctly different default tolerance compared to the remaining tranches. By solving the puzzling question of properly pricing the risk premium for expected credit loss, we explain the rationale of first loss retention as credit risk cover on the basis of our simulation results for pricing purposes under the impact of asymmetric information.
An Application of Extreme Value Theory for Measuring Risk
, 2003
"... Many fields of modern science and engineering have to deal with events which are rare but have significant consequences. Extreme value theory is considered to provide the basis for the statistical modelling of such extremes. The potential of extreme value theory applied to financial problems has onl ..."
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Cited by 6 (0 self)
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Many fields of modern science and engineering have to deal with events which are rare but have significant consequences. Extreme value theory is considered to provide the basis for the statistical modelling of such extremes. The potential of extreme value theory applied to financial problems has only been recognized recently. This paper aims at introducing the fundamentals of extreme value theory as well as practical aspects for estimating and assessing statistical models for tailrelated risk measures.