Academic literature on the topic 'Incremental risk charge (IRC)'

As part of Basel II's incremental risk charge (IRC) methodology, this paper summarizes our extensive investigations of constructing transition probability matrices (TPMs) for unsecuritized credit products in the trading book. The objective is to create monthly or quarterly TPMs with predefined sectors and ratings that are consistent with the bank's Basel PDs. Constructing a TPM is not a unique process. We highlight various aspects of three types of uncertainties embedded in different construction methods: (1) the available historical data and the bank's rating philosophy; (2) the merger of one-year Basel PD and the chosen Moody's TPMs; and (3) deriving a monthly or quarterly TPM when the generator matrix does not exist. Given the fact that TPMs and specifically their PDs are the most important parameters in IRC, it is our view that banks may need to make discretionary choices regarding their methodology, with uncertainties well understood and managed.

The extension of the risk management models to the broad sustainability concept is an open issue in both the academic and financial communities. The current state of the art for the risk measurement models is not satisfactory. There are many weaknesses in the data feasibility and the debate about what the new models should measure is still open. We propose a model that aims to improve the existing market risk models by capturing the sustainability risk sources. The starting point is the incremental risk charge (IRC) model, namely a 1 year 99.9 percent value at risk that covers default and migration risk. We extend the traditional model by defining the environmental incremental risk charge (E-IRC), with two enhancements: 1) by some data analysis and statistical techniques we introduce some new environmental, social, and governance (ESG) risk factors to better explain the portfolio behavior; 2) we adjust the default probabilities provided by the rating agencies by combining the green premium (lower spread) observed in the markets with the available ESG score for each obligor. The new model was tested on a real portfolio by a Montecarlo engine. The model does not affect too much the existing IRC results, so allowing continuity in the reporting process. The main advantage of E-IRC is the availability of a more effective risk decomposition process, where the ESG contributions can be properly highlighted.

AbstractIn the present paper we consider the Default Risk Charge (DRC) measure as an effective alternative to the Incremental Risk Charge (IRC) one, proposing its implementation by a quasi exhaustive-heuristic algorithm to determine the minimum capital requested to a bank facing the market risk associated to portfolios based on assets issued by several financial agents. While most of the banks use the Monte Carlo simulation approach and the empirical quantile to estimate this risk measure, we provide new computational approaches, exhaustive or heuristic, currently becoming feasible because of both the new regulation and to the high speed - low cost technology available nowadays. Concrete algorithms and numerical examples are provided to illustrate the effectiveness of the proposed techniques.

In the Fundamental Review of the Trading Book (FRTB), the latest regulation for minimum capital market risk requirements, one of the major changes, is replacing the Incremental Risk Charge (IRC) with the Default Risk Charge (DRC). The DRC measures only the default and does not consider the migration rating risk. The second new change in this approach was that the DRC now includes equity assets, contrary to the IRC. This paper studies DRC modeling under the Internal Model Approach (IMA) and the regulator conditions that every DRC component must respect. The FRTB presents the DRC measurement as Value at Risk (VaR) over a one-year horizon, with the quantile equal to 99.9%. We use multifactor adjustment to measure the DRC and compare it with the Monte Carlo Model to understand how the approach fits. We then define concentration in the DRC and propose two methods to quantify the concentration risk: the Ad Hoc and Add-On methods. Finally, we study the behavior of the DRC with respect to the concentration risk.

Purpose – The purpose of this paper is to outline how banks are coping with the new regulatory challenges posed by stressed value at risk (SVaR). The Basel Committee has introduced three measures of capital charges for market risk: incremental risk charge (IRC), SVaR and comprehensive risk measure (CRM). This paper is designed to analyse the methodologies for SVaR deployed at different banks to highlight the SVaR-related challenges stemming from complying with Basel 2.5. This revised market risk framework comes into force in Europe in 2012. Among the wide range of changes is the requirement for banks to calculate SVaR at a 99 per cent confidence interval over a period of significant stress. Design/methodology/approach – The current research project is based on in-depth, semi-structured interviews with nine universal banks and one financial services company to explore the strides major banks are taking to implement SVaR methodologies while complying with Basel 2.5. Findings – This paper focuses on strengths and weaknesses of the SVaR approach while reviewing peer practices of implementing SVaR modelling. Interestingly, the surveyed banks have not indicated significant challenges associated with implementation of SVaR, and the reported problems boil down to dealing with the poor quality of market data and, as in cases of IRC and CRM, the lack of regulatory guidance. As far as peer practices of implementing SVaR modelling are concerned, the majority of the surveyed banks utilise historical simulations and apply both the absolute and relative measures of volatility for different risk factors. Originality/value – The academic studies that explicitly analyse challenges associated with implementing the stressed version of VaR are scarce. Filling in the gap in the existing academic literature, this paper aims to shed some explanatory light on the issues major banks are facing when calculating SVaR. In doing so, this study adequately bridges theory and practice by contributing to the fierce debate on compliance with Basel 2.5.

Li-ion batteries are more prone to safety incidents than other battery technologies. This is due to the inherently higher energy density as well as the flammability of especially anode materials, separator, and electrolyte solvents. During charging, metallic Lithium may form on the anode surface and could in the worst case short the battery from within and cause a fire and or explosion [1]. It is therefore vital to be able to monitor the battery’s state-of-health (SoH) and state-of-safety (SoS) [2], to avoid further use of Li-ion batteries that may have aged in a detrimental fashion and can have an increased safety risk. Especially when a battery has aged considerably (SoH < 80%) the path of ageing can significantly affect the safety properties of the battery and cause dramatic differences in the severity of a possible safety incident. Incremental capacity analysis (ICA, dQ/dV) has emerged as a very powerful diagnostic technique for Li-ion batteries. We recently used ICA to identify different degradation mechanisms in commercial Li-ion cells through classification and tracking of selected dQ/dV features [3]. This allowed us to identify safety critical ageing at an early stage. ICA requires constant charge and discharge at slow currents (C-rate < C/10) [4, 5]. However, a slow controlled constant current charge or discharge is normally not feasible and cannot be easily applied to battery systems without access to high precision battery pack testers. In this work we will revisit applying ICA on the Open-Circuit-Voltage (OCV) curve in the capacity space [6]. The OCV curve can be obtained from any sequence of current or power pulses followed by a rest period to allow the cell to reach a pseudo-OCV after each pulse. By pulsing through the entire state-of-charge window an OCV vs capacity curve can be obtained with sufficient accuracy to perform ICA. A direct comparison of conventional constant current ICA (cc-ICA) and high-resolution-OCV ICA (ocv-ICA) is presented. A strong correlation between ageing patterns is observed providing a first proof-of-concept for the method. References: Ratnakumar, B.V. and M.C. Smart, Lithium Plating Behavior in Lithium-ion Cells, in Rechargeable Lithium-Ion Batteries, M. Winter, et al., Editors. 2010, Electrochemical Soc Inc: Pennington. p. 241-252. Cabrera-Castillo, E., F. Niedermeier, and A. Jossen, Calculation of the state of safety (SOS) for lithium ion batteries. Journal of Power Sources, 2016. 324: p. 509-520. Spitthoff, L., et al., Incremental Capacity Analysis (dQ/dV) as a Tool for Analysing the Effect of Ambient Temperature And Mechanical Clamping on Degradation. Journal of Electroanalytical Chemistry, 2023. Dubarry, M., et al., Incremental capacity analysis and close-to-equilibrium OCV measurements to quantify capacity fade in commercial rechargeable lithium batteries. Electrochemical and Solid State Letters, 2006. 9(10): p. A454-A457. Dubarry, M. and D. Ansean, Best practices for incremental capacity analysis. Frontiers in Energy Research, 2022. 10: p. 18. Petzl, M. and M.A. Danzer, Advancements in OCV Measurement and Analysis for Lithium-Ion Batteries. Ieee Transactions on Energy Conversion, 2013. 28(3): p. 675-681.

This study tests the information content of earnings less risk-free interest charge (ERIC) and analyses its ability to explain fluctuations in market-adjusted stock returns. Following Biddle et al. (1997) study design, we perform relative and incremental information content tests. Relative information content tests reveal that mandatory reporting metrics — such as earnings before extraordinary items (EBEI), cash flow from operations (CFO), and total comprehensive income (TCI) — are more highly associated with stock returns and firm values than ERIC or residual income (RI). A number of sensitivity analyses support our findings. To test incremental information content, we split ERIC into five components. Primary results indicated that components specific to ERIC — changes of net assets, after-tax interest expenses, and capital charge — do not add relative information content. Yet, sensitivity tests suggest that some ERIC components add incremental information, especially when accounting for market expectations. However, these findings are not economically substantial compared to CFO and EBEI. Overall, we conclude that mandatory metrics generally outperform ERIC and residual income. Our unique contribution lies in applying the established methodology of measuring economic value added (EVA’s) relative and incremental information content to ERIC

Abstract Introduction: A randomized phase III trial demonstrated improved overall survival (OS) and event-free survival (EFS) for older patients diagnosed with therapy-related AML (t-AML) or AML with myelodysplasia-related changes (AML-MRC) treated with a liposomal formulation of daunorubicin-cytarabine (CPX-351) when compared with 7+3 induction and consolidation therapy, a previous standard of care. Based on those results, CPX-351 was approved in 2017 in the United States (US) for adults with newly diagnosed t-AML and AML-MRC irrespective of age. However, the health economic implications of CPX-351 from a US payer perspective are not well-characterized. Methods: We constructed a partitioned survival analysis based on the data from the original phase III trial (Lancet et al. JCO 2018) and subsequent updates (Lancet et al. Lancet Haematology 2021) and post-hoc analyses from the landmark trial (Villa et al. JME 2019). Newly diagnosed AML patients at a median age of 68 years entered the model with active AML and received either CPX-351 or 7+3 induction and consolidation therapy followed by allogeneic hematopoietic cell transplant (allo-HCT) for some patients. Parametric survival distributions were fitted using patient-level data recreated from the Kaplan-Meier curves and at-risk tables for EFS and OS for both study arms. Log-logistic distributions demonstrated the best fit and were chosen for this model. Frequency and setting (inpatient vs outpatient) of re-induction and consolidation therapy were used as outlined in the original study. Costs and practice patterns of salvage therapy, receipt of allo-HCT, supportive care, and incidence of complications were derived from the original trial or published literature (Table). If available, costs for the Medicare population rather than commercially insured patients were used. For the CPX-351 arm, the maximum new technology add-on payment granted by the Centers for Medicare & Medicaid Services for fiscal year 2020 was added to the costs of inpatient induction and consolidation therapy in the 7+3 arm. Costs were adjusted for inflation to 2020 US dollars using the personal consumption expenditure health index. Previously published utilities were used and measured in quality-adjusted life years (QALYs). Costs and utilities were discounted by 3% annually (range 3-5% in one-way sensitivity analysis) and modelled over a 10-year time horizon. Model outputs were used to calculate the incremental cost-effectiveness ratio (ICER) for CPX-351 over 7+3. A willingness-to-pay (WTP) threshold of $150,000/QALY gained was used to determine cost-effectiveness. One-way sensitivity analyses were performed with utility values varied with a 10% range and all other variables across a 50% range. In probabilistic sensitivity analyses using 10,000 Monte Carlo simulations, beta distributions were used to describe probabilities and utilities, while gamma distributions were used for costs. Results: CPX-351 and 7+3 were associated with lifetime costs of $371,482 and $256,415, respectively, for an incremental cost of $115,066 with CPX-351. CPX-351 resulted in an incremental gain of 0.49 QALYs compared to 7+3 (CPX-351: 1.11 QALYs vs 7+3: 0.62 QALYs) resulting in an ICER of $231,563/QALY gained in the base case analysis. In one-way sensitivity analyses our model was most sensitive to the probability of receiving allo-HCT in either arm (Figure). In threshold analyses, a reduction of the CPX-351 add-on charge in the inpatient setting by 70.4% (from $47,353 to $14,004) would lower the ICER below the WTP threshold of $150,000/QALY. Probabilistic sensitivity analysis yielded a median ICER of $222,894 (95% credible interval: $142,863 - $313,289) with 7+3 favored in 96.4% of 10,000 iterations at a WTP threshold of $150,000. Conclusion: Use of CPX-351 under the current pricing model is unlikely to be cost-effective for most older patients with t-AML/AML-MRC who resemble those enrolled in the clinical trial. A reduction by 70.4% for the CPX-351 add-on charge in the inpatient setting would be necessary to lower the ICER below the conventional WTP threshold of $150,000/QALY. Higher rates of allo-HCT and outpatient consolidation with CPX-351 did not lead to gains in clinical utility or cost reductions substantial enough to make CPX-351 cost-effective. The implications of a potential outpatient administration of CPX-351 induction on its cost-effectiveness require additional studies. Figure 1 Figure 1. Disclosures Shallis: Curis: Divested equity in a private or publicly-traded company in the past 24 months. Podoltsev: PharmaEssentia: Honoraria; Blueprint Medicines: Honoraria; Pfizer: Honoraria; Incyte: Honoraria; CTI BioPharma: Honoraria; Bristol-Myers Squib: Honoraria; Novartis: Honoraria; Celgene: Honoraria. Huntington: Bayer: Honoraria; Thyme Inc: Consultancy; Servier: Consultancy; Novartis: Consultancy; SeaGen: Consultancy; AstraZeneca: Consultancy, Honoraria; Genentech: Consultancy; TG Therapeutics: Research Funding; Flatiron Health Inc.: Consultancy; DTRM Biopharm: Research Funding; AbbVie: Consultancy; Pharmacyclics: Consultancy, Honoraria; Celgene: Consultancy, Research Funding. Zeidan: Astex: Research Funding; Amgen: Consultancy, Research Funding; Epizyme: Consultancy; BMS: Consultancy, Other: Clinical Trial Committees, Research Funding; Aprea: Consultancy, Research Funding; Cardiff Oncology: Consultancy, Other: Travel support, Research Funding; AstraZeneca: Consultancy; Janssen: Consultancy; Daiichi Sankyo: Consultancy; Jasper: Consultancy; Astellas: Consultancy; Genentech: Consultancy; Geron: Other: Clinical Trial Committees; Agios: Consultancy; Novartis: Consultancy, Other: Clinical Trial Committees, Travel support, Research Funding; BioCryst: Other: Clinical Trial Committees; Pfizer: Other: Travel support, Research Funding; Kura: Consultancy, Other: Clinical Trial Committees; Incyte: Consultancy, Research Funding; BeyondSpring: Consultancy; Gilead: Consultancy, Other: Clinical Trial Committees; Ionis: Consultancy; Loxo Oncology: Consultancy, Other: Clinical Trial Committees; ADC Therapeutics: Research Funding; Jazz: Consultancy; Boehringer Ingelheim: Consultancy, Research Funding; Acceleron: Consultancy, Research Funding; AbbVie: Consultancy, Other: Clinical Trial Committees, Research Funding.

Submitted by Matheus Pimentel Rodrigues (mth3u5@gmail.com) on 2015-09-14T12:04:09Z No. of bitstreams: 1 Dissertação_Matheus_Pimentel_Rodrigues.pdf: 17000006 bytes, checksum: e2e4830bacdedb9b50b9f80a8638df3f (MD5)<br>Approved for entry into archive by Renata de Souza Nascimento (renata.souza@fgv.br) on 2015-09-14T16:30:12Z (GMT) No. of bitstreams: 1 Dissertação_Matheus_Pimentel_Rodrigues.pdf: 17000006 bytes, checksum: e2e4830bacdedb9b50b9f80a8638df3f (MD5)<br>Made available in DSpace on 2015-09-14T19:08:49Z (GMT). No. of bitstreams: 1 Dissertação_Matheus_Pimentel_Rodrigues.pdf: 17000006 bytes, checksum: e2e4830bacdedb9b50b9f80a8638df3f (MD5) Previous issue date: 2015-08-17<br>This is one of the first works to address the issue of evaluating the effect of default for capital allocation in the trading book, in the case of public equities. And more specifically, in the Brazilian Market. This problem emerged because of recent crisis, which increased the need for regulators to impose more allocation in banking operations. For this reason, the BIS committee, recently introduce a new measure of risk, the Incremental Risk Charge. This measure of risk, is basically a one year value-at-risk, with a 99.9% confidence level. The IRC intends to measure the effects of credit rating migrations and default, which may occur with instruments in the trading book. In this dissertation, the IRC was adapted for the equities case, by not considering the effect of credit rating migrations. For that reason, the more adequate choice of model to evaluate credit risk was the Moody’s KMV, which is based in the Merton model. This model was used to calculate the PD for the issuers used as case tests. After, calculating the issuer’s PD, I simulated the returns with a Monte Carlo after using a PCA. This approach permitted to obtain the correlated returns for simulating the portfolio loss. In our case, since we are dealing with stocks, the LGD was held constant and its value based in the BIS documentation. The obtained results for the adapted IRC were compared with a 252-day VaR, with a 99% confidence level. This permitted to conclude the relevance of the IRC measure, which was in the same scale of a 252-day VaR. Additionally, the adapted IRC was capable to anticipate default events. All result were based in portfolios composed by Ibovespa index stocks.<br>Esse é um dos primeiros trabalhos a endereçar o problema de avaliar o efeito do default para fins de alocação de capital no trading book em ações listadas. E, mais especificamente, para o mercado brasileiro. Esse problema surgiu em crises mais recentes e que acabaram fazendo com que os reguladores impusessem uma alocação de capital adicional para essas operações. Por essa razão o comitê de Basiléia introduziu uma nova métrica de risco, conhecida como Incremental Risk Charge. Essa medida de risco é basicamente um VaR de um ano com um intervalo de confiança de 99.9%. O IRC visa medir o efeito do default e das migrações de rating, para instrumentos do trading book. Nessa dissertação, o IRC está focado em ações e como consequência, não leva em consideração o efeito da mudança de rating. Além disso, o modelo utilizado para avaliar o risco de crédito para os emissores de ação foi o Moody’s KMV, que é baseado no modelo de Merton. O modelo foi utilizado para calcular a PD dos casos usados como exemplo nessa dissertação. Após calcular a PD, simulei os retornos por Monte Carlo após utilizar um PCA. Essa abordagem permitiu obter os retornos correlacionados para fazer a simulação de perdas do portfolio. Nesse caso, como estamos lidando com ações, o LGD foi mantido constante e o valor utilizado foi baseado nas especificações de basiléia. Os resultados obtidos para o IRC adaptado foram comparados com um VaR de 252 dias e com um intervalo de confiança de 99.9%. Isso permitiu concluir que o IRC é uma métrica de risco relevante e da mesma escala de uma VaR de 252 dias. Adicionalmente, o IRC adaptado foi capaz de antecipar os eventos de default. Todos os resultados foram baseados em portfolios compostos por ações do índice Bovespa.

Abstract In 2009 the Basel Committee on Banking Supervision released the final guidelines for computing capital for the Incremental Risk Charge, which is a complement to the traditional Value at Risk intended to measure the migration risk and the default risk in the trading book. Before Basel III banks will have to develop their own Incremental Risk Charge model following these guidelines. The development of such a model that computes the capital charge for a portfolio of corporate bonds is described in this thesis. Essential input parameters like the credit ratings of the underlying issuers, credit spreads, recovery rates at default, liquidity horizons and correlations among the positions in the portfolio will be discussed. Also required in the model is the transition matrix with probabilities of migrating between different credit states, which is measured by historical data from Moody´s rating institute. Several sensitivity analyses and stress tests are then made by generating different scenarios and running them in the model and the results of these tests are compared to a base case. As it turns out, the default risk contributes for the most part of the Incremental Risk Charge.

L’imagerie scintigraphique des cancers thyroïdiens différenciés (CTD) présente la particularité d’utiliser deux radiopharmaceutiques, l’iode 131 (131I) et le 18-Fluorodésoxyglucose (18FDG). La fixation de ces traceurs dépend habituellement du degré de différenciation et de l’agressivité de la tumeur. L’objectif de ce travail était d’étudier l’apport de différents aspects techniques et d’instrumentation, à savoir l’imagerie hybride par TEMP/TDM et TEP/TDM, la point-spread function (PSF), la taille des voxels et la technologie TEP digitale, et d’explorer si d’autres traceurs TEP pouvaient présenter un intérêt. Le but de la première partie était d’étudier les performances de la TEP/TDM au 18FDG à l’étage cervical pour la détection de la maladie ganglionnaire. Une acquisition TEP/TDM dédiée a amélioré la détection de la maladie tumorale par rapport à l’acquisition classique. L’utilisation de la PSF a permis de détecter des tailles de lésions plus petites et la durée optimale de cette acquisition a été évaluée. Des reconstructions avec des tailles de voxels ultra-fines ont été réalisées sur TEP digitale pour étudier l’impact de la PSF et des voxels ultra-fins sur les données quantitatives. La seconde partie a porté sur l’imagerie 131I-TEMP/TDM et 18FDG-TEP/TDM, afin de quantifier le volume de la maladie persistante. Il a ainsi été montré que la masse tumorale était corrélée au risque post-opératoire et avait un impact sur la réponse au traitement. L’objectif de la troisième partie était d’étudier un autre traceur TEP, la 18-Fluorocholine (FCH), ainsi qu’un marqueur de la néovascularisation, l’antigène membranaire spécifique de la prostate (PSMA). Nos données suggèrent qu’un examen TEP à la FCH négatif au sein d’un nodule thyroïdien à cytologie indéterminée permettrait d’éliminer la malignité, et pourrait éviter des chirurgies inutiles. Par ailleurs, le marquage au PSMA évalué par immunohistochimie dans les néo-vaisseaux est associé à des facteurs de mauvais pronostic. D’autres études sont nécessaires pour confirmer l’intérêt éventuel des examens TEP à la FCH et au 68Ga-PSMA en oncologie thyroïdienne<br>Radioiodine (131I) and 18-Fluorodeoxyglucose (18FDG) are two radiopharmaceuticals used for scintigraphic imaging in differentiated thyroid cancers (DTC). Tumour uptake of each tracer depends on tumour differentiation and aggressiveness. Our goal was to further assess various technical aspects in DTC imaging workup, such as SPECT/CT and PET/CT, point-spread function (PSF), voxel size, digital PET, and to explore further other PET tracers. The aim of the first part was to assess the performance of 18FDG PET/CT for the detection of neck lymph node involvement. A dedicated PET/CT acquisition improved tumour detection compared to the whole-body acquisition. PSF reconstruction allowed detection of smaller cancer deposits and the optimal acquisition duration time was assessed. Using digital PET acquisitions, ultra-thin voxels reconstructions were performed. The impact of ultra-thin voxels and PSF on quantitative values was evaluated. The second part focused on 131I-SPECT/CT and 18FDG-PET/CT imaging, in an attempt to assess tumour burden of persistent disease. Tumor burden was correlated with the postoperative risk and affected the response to therapy. In the third part, another PET tracer, i.e. 18-Fluorocholine (FCH), and a marker of neovasculature, i.e. prostate-specific membrane antigen (PSMA), were studied. FCH PET/CT offered high negative predictive value to reliably exclude cancer in PET-negative nodules with indeterminate cytology and might prevent unnecessary surgeries. Also, PSMA expression assessed with immunohistochemistry was associated with poor prognosis factors. Further studies are needed to confirm new insights of FCH PET and 68Ga-PSMA PET in DTC