Research February 2009

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23 Feb-09: The Case for Fully Integrated Models of Economic Capital

By Alexander McNeil, Professor, Maxwell Institute for the Mathematical Sciences, Edinburgh EH14 4AS, UK, Axel Kirchner, University of Edinburgh and Gavin Lee Kretzschmar, University of Edinburgh - Accounting and Finance

Economic capital models are potentially powerful tools for enterprise risk management (ERM), and for the supervisory review process (Pillar 2) of the Basel II and Solvency II regulatory capital frameworks. We argue that, to fulfill this potential, economic capital models need to be fully integrated and to go beyond the more modular approaches that dominate Pillar 1 methodology. In a modular approach capital is determined at business-unit or risk category level (e.g. market, credit and liquidity risk separately) and aggregated ex post by simple summation or correlation-adjusted summation; in a fully integrated approach aggregation occurs implicitly by relating all risks to a common set of fundamental risk drivers.

We explain how calibrated economic scenario generation lies at the heart of a fully integrated approach to modelling the risks on the asset side of a firm's balance sheet and discuss how stochastic scenario generation gives the ideal framework for exploring the diversification benefits that different units or asset classes bring to an enterprise. We explain how this approach allows us to understand the sources of tail risk and gives us a platform for integrated stress testing, sensitivity analysis, and the allocation of capital to business units for risk-adjusted performance comparisons.


23 Feb-09: EU Kettle Boils Over by USD 24 Trillions or over 40% of EU Bank Balances - Don't Believe it!

By Robert McDowell

This week just gone saw explosive estimates in a secret 17 page document seen by the press. A bail-out of the toxic assets held by European banks' could plunge the European Union into crisis, according to a confidential Brussels document. European Council meetings are immensely secure - it is very rare for key documents to be leaked. Our Contintental partners will be asking themselves whether UK oficials deliberately leaked the secret document? It says things like: “Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,” as seen by The Daily Telegraph. I smell a rat - a con-job? And, "It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.” Read it all at: http://monetaryandfiscal.blogspot.com/

23 Feb-09: EU leaders back sweeping financial regulations

By PATRICK McGROARTY, Associate Press

European leaders mounted a united front against the global financial crisis Sunday, proposing sweeping new market regulations, but it remained unclear whether economic giants like the United States and China would go along.

Heads of government and finance ministers from Europe's largest economies joined German Chancellor Angela Merkel in Berlin to lay the groundwork for a common European position on economic reforms before an April 2 summit of the Group of 20 nations in London.

"Europe will own up to its responsibility in the world," Merkel told reporters following the talks.

Read the whole article here.

20 Feb-09: Why the regulators must have a global ‘risk map’

by Otmar Issing and Jan Krahnen, published in the Financial Times

We are still in the midst of the most severe downturn since the Great Depression. But one day we will come out of these dire straits. Are we any better prepared today to avoid a repetition of such a disaster? Have the supervisory agencies in the main financial centres learnt their lesson and adjusted their policies accordingly?

Consider the insights gained during this crisis. First, supervision has to focus on containing systemic risk rather than on avoiding individual bank defaults. Second, early warning signals need to be backed up by reliable information on all financial markets, including derivatives. Both aspects have been neglected in the past and continue to be neglected today.

The prevailing minimum capital accords, Basel I and Basel II, while aiming at stabilising individual institutions, disregard system-wide risks altogether. However, even if systemic risk were on the agenda of central banks and supervisors, there would still be a profound lack of reliable data on crossborder exposure among banks and on derivative products. This severe informational gap has undermined the credibility of early warnings published by, for example, the Bank for Inter­national Settlements, well before 2007.

The the whole letter here!

18 Feb-09: Monetary and Fiscal blog

by Robert McDowell

Altough we do not give investment advice on our website, we simply present analysis and research opinions we think are relevant to consideration of business requirements in the banking supervision space.

Therefore we invite you to have a look at Robert McDowell's comments on monetary and fiscal issues in his blog.



18 Feb-09: Analyze requirements for complex software systems in a new, holistic way

by Fabio Castiglioni and Peter J Cripps, IBM

A method to resolve conflicting functional and non-functional requirements.

This article describes a method for systematically analyzing requirements of an IT system so you can create a component model that addresses the requirements in a holistic way. Explore sample requirements with uses cases and "stress cases" to identify potential conflicts between functional and non-functional requirements. Stress cases must be addressed by defining an optimum solution that resolves the conflict. Learn how functional and non-functional requirements are opposing forces that are handled similarly to forces in civil engineering structures.


16 Feb-09: The Importance of Wholesale Financial Services to the EU Economy

2008 July 2008, Published by the City of London. The authors of this report are London Economics

The scenario analysis presented in the report explored the implications for the EU27 wholesale financial services of different evolutions of a number of key drivers of the sector, namely the overall level of economic activity, domestic savings rates, the response of regulators to the credit crunch and its fall-outs, the international competitiveness of the sector and the reliance on the “originate and distribute” model.

The results of the scenario analysis highlight the great uncertainty surrounding the medium-term outlook for the EU27 wholesale financial services sector with the expected level of GVA (at 2007 prices) ranging from being almost 13% higher in 2012 than in 2007 in the most optimistic scenario to almost 14% lower in the most pessimistic scenario. In the scenario viewed as most likely, the sector’s GVA in 2012 is still 0.7% below its 2007 level. It should be noted that over the longer term, the industries’ prospects remain sanguine, given its overall global competitiveness and importance.

As the wholesale and investment banking sub-sectors of the EU27 wholesale financial services sectors are likely to be the most affected by the credit crisis and its on-going fall-out, Member States with relatively large wholesale and investment banking sub-sectors such as the United Kingdom and, to a somewhat lesser extent France, Germany, Italy and Spain, will feel the brunt of the slowdown in the sector.


16 Feb-09: Enterprise Mashup Application Platform - A Research Project from SAP Research, Palo Alto

by Rama Gurram, SAP

Enterprise Mashup Application Platform (EMAP) is a light-weight Mashup platform which provides a browser based application composition environment, tools and run-time that simplify developing applications on top of existing complex Enterprise Platforms and Services from conceptualization to deployment.


16 Feb-09: How to get IT to accept, and love, R

by REvolution Computing

IT departments in large organizations have a reputation for being conservative. Despite the successes and widespread deployment of projects like Linux, Apache and MySQL, it can still sometimes be difficult to get IT to accept and support open-source applications.

Daniel Viar had such an experience, and asked on the r-help mailing list, "How do I get my IT department to 'bless' R?": I currently use R at work "under the radar", but there's a chance I could lose that access. I'd like to get our company to feel comfortable with open source and R in particular. Does anyone have any experience with their company's IT department and management that they would be willing to share?

The question prompted more than 30 replies with suggestions, which Daniel helpfully summarized in a followup post. Below, I've selected some of the best arguments and information you can use to convince IT not only to accept R, but to understand its many benefits compared to other statistical software and even, perchance, to love it.

Read the whole article here!

16 Feb-09: Obamanomics

by Robert McDowell

Robert McDowell is following the Banking crisis from a US perspective on his blog Obamanomics. On Friday there was a reference to Roubini's estimate on US originated bank losses. Assuming a contraction of 5 percent, a housing decline of another 20 percent and unemployment peaking at 9 percent, the total estimated bank losses in the US according to RGE will be around USD 1.7 and 1.8 bn.

The day before there was an analysis of Geithner's USD 789 bn package. Read it all here!

12 Feb-09: UK: Treasury Select Committee Hearings Tuesday and Wednesday 10th and 11th February 2009

by John A Morrison & Robert McDowell

The Thatcher Room in Portcullis House, Westminster; became the Court of the Star Chamber for British banking this week. One of the MPs actually wondered aloud what Henry the VIIIth might have done in these circumstances; “Off with his Head”. This was “The Spanish Inquisition”. Asymptotix associate Robert McDowell presents a fair summary of events on his blog, this morning.

Robert’s crucial conclusion is that the letter to the Treasury Select Committee by one Paul Moore (an ex-Risk Manager of the parish); which letter being the basis for the resignation of Sir James Crosby from the FSA and much huffin and puffin by little piggies at Prime Minister’s Question Time; is a chimera a journalistic piece of running up the flag pole. Robert argues that; “Moore's letter is an effective distraction. It makes some good points, but ultimately it diverts attention from more truly serious matters.”

Now we have that out of the way, Robert’s notes on the details of the conversations point to the substance of the issues debated and where we can learn lessons for the future;- Sir Fred actually nailed it early in the debate; the issue was Stress Testing and the inadequacy of historic accounting values in alerting a board as to what risk was likely to look like even 3-months ahead on alternate scenarios. Lord Stevenson referred repeatedly to Basel II and to HBOS’ elaborate committee structure underpinning risk management but those of us who follow agile techniques understand completely that committees just obfuscate and create “delay worry and expense” to use the Edinburgh phrase. ABN Amro was a disaster for RBOS, a pig in a poke (I thought someone was actually going to use that phrase) again mainly because RBOS personnel had followed good old fashioned due diligence techniques of the “wee Scottish CA”! No consideration was given to exploring downside risk using quantitative techniques to allow the board to examine the interdependence of a multivariate equation, which is what risk really is, it’s not a topic which can be managed in committee. As a senior Scottish banker once remarked to one of his committees; “we are running a bank here, not a philosophy department!” Roberts blog notes are here;-


12 Feb-09: United States: Recovery Coming but “Back-Loaded” Stimulus Means Weaker Near-Term Outlook

by Richard Berner & David Greenlaw, Morgan Stanley

We still think recovery is in prospect for the US and global economies, despite the profound weakness in activity around the world. Indeed, a key theme for our global team has long been the notion that the weaker economic activity becomes now, the more aggressive will be the policy response, increasing the chances of recovery in 2010. The critical uncertainty − one that arises in every recession − is whether or not policy will get traction. We strongly believe that it eventually will, given that officials are now crafting comprehensive plans to fix the financial system.


11 Feb-09: P. J. O’Rourke in the Financial Times: “Adam Smith gets the last laugh”!

by the Financial Times

The free market is dead. It was killed by the Bolshevik Revolution, fascist dirigisme, Keynesianism, the Great Depression, the second world war economic controls, the Labour party victory of 1945, Keynesianism again, the Arab oil embargo, Anthony Giddens’s “third way” and the current financial crisis.

The free market has died at least 10 times in the past century. And whenever the market expires people want to know what Adam Smith would say. It is a moment of, “Hello, God, how’s my atheism going?”


11 Feb-09: Assessing Portfolio Credit Risk Changes

by Olli Castrén, Trevor Fitzpatrick and Matthias Sydow, ECB


This study has described the analytical concepts underpinning credit risk modelling, and has implemented a credit risk model that seeks to gauge the credit risk pro.les of a sample of EU LCBGs. To do so it uses publicly available exposure data from EU LCBGs.annual reports, together with several other inputs.

While the sample is comparatively limited, the model nevertheless produces some relatively plausible results given the restricted inputs. Overall Tier 1 capital provision of EU LCBGs seems to be in the right ballpark. The development from one year to another reveals that LCBGs VaR figures as a percentage of Tier 1 capital change without following a specific pattern. However, there are some differences between VaR figures that are calculated on the basis of stochastic LGDs or sector specific LDGs.

Results from stress testing show shocks to macro factors have had a larger impact in the year 2004 compared to 2005. In both settings, stochastic vs. sector specific LGDs, and years the most pronounced impact on credit VaR is coming from a negative shock to GDP. The interquartile range of the reaction of VaR lies between zero and 40 for all shocks revealing that 75 percent of the banks could probably withstand any of these shocks. Limitations to the current framework are the out-of-sample operation of the GVAR as well as a potentially non-linear relationship between the EDF and the explanatory variables of the GVAR which is not yet considered in the Satellite model. In addition to that, model uncertainty plays a vital role regarding the interpretation of the results. First, there is uncertainty about the parameters used in the model; second, uncertainty about the serial correlation properties of shocks; and third uncertainty about data quality.


11 Feb-09: With credit taps turned off, economic life withers

by David McWilliams

IF you want to visualise what is now happening in the economy, think about the great plains of Africa. Have you ever seen the wonderful image of the rains flooding into the savannah of the Serengeti? Once a year, between March and May, the arid, sun-parched plain undergoes an extraordinary transformation as the rains bring life and abundance. Flowers and vegetation bloom, animals and insects return to the lush pasture to graze, mate and generally do their thing.


11 Feb-09: IBM - Statistical programming with R

by IBM developerWorks > Linux | Open source > 2004

In the first of a three-part series (from 2004), David and Brad introduce you to R, a rich statistical environment, released as free software. It includes a programming language, an interactive shell, and extensive graphing capability. What's more, R comes with a spectacular collection of functions for mathematical and statistical manipulations -- with still more capabilities available in optional packages.

"The R environment is not intended to be a programming language per se, but rather an interactive tool for exploring data sets, including the generation of a wide range of graphic representations of data properties. You can save both the generated graphics and the steps taken during a session for later use, which is especially useful in picking up working environments, per project, where you last left off. By default, R commands are saved in a session history, but you can also save particularly helpful sequences of instructions in .R files that you can source() within a session."

Explore more at:


10 Feb-09: Two Crucial New Credit Risk Management Ideas from Banco de Espana

by John A Morrison

Research output in the Credit Risk space from Banco De Espana is second to none (I don’t want to start a European incident here, the work of the Banque de France and the Bundesbank is extremely important too) but its rare that research analysts from one Central Bank publish two papers simultaneously of such importance to the Credit Risk management process in banking today. We thought it was worth highlighting both papers.



This paper is the first to empirically investigate four questions that tie overnight rates and the stance of monetary policy to credit risk-taking and that are relevant for both academics and policy makers (central bankers and supervisors alike). Do lower short-term interest rates lead to more lending to borrowers that in the past were riskier? Do lower interest rates increase the credit risk-taking by banks? Are default rates the highest when after a period of low interest rates, which boosted credit risk-taking, a significant monetary tightening devalues the net worth of the borrowers? Do the answers to the former questions vary across types of banks, borrowers and banking markets?


EAD Calibration for Corporate Credit Lines

Gabriel Jiménez, Banco de España, Jose A. Lopez, Federal Reserve Bank of San Francisco & Jesús Saurina, Banco de España

Corporate credit lines are a key product for banks, and the management of their inherent credit risks requires calibration of their EAD parameters. Using the credit register maintained by Banco de España, we construct an extensive database of defaulted corporate credit lines over a twenty-year period to calibrate the key LEQ component of these EAD values at various default horizons. Our results show that a variety of factors – such as commitment size, collateralization and maturity – influence the LEQ calibrations. Our conclusion is that banks must address these factors in their EAD calibration processes, even if regulatory capital guidelines do not explicitly require it. Our results should provide reasonable starting values for most of these calibrations, but future work across different countries and time periods is necessary.


10 Feb-09: EU interim forecasts for 2009-2010: sharp downturn in growth

by the The European Commission

The European Commission is expecting GDP in the European Union to fall by about 1.8% in 2009 before recovering moderately to 0.5% in 2010.

Amid exceptional uncertainty about global developments, the European Commission released on 19 January its extended interim forecast. The Commission forecast estimates that economic growth to have dropped to about 1% in 2008 in both the EU and the euro area (down from just below 3% in 2007). In 2009, real GDP is expected to fall by less than 2% in both regions, although growth is projected to remain positive in 9 Member States. This represents a downward revision of about 2 percentage points compared to the previous Commission forecast of last autumn. GDP growth is expected to turn moderately positive in 2010, to around ½%.


The Commission usually publishes economic forecasts four times a year: comprehensive exercises in spring and autumn for all EU countries and lighter interim forecasts published in between, in February and September for the largest economies and a few variables only. The current interim forecast takes an extended format covering all Member States, more variables than usual and the full two-year forecast horizon. This is because of the exceptionally rapid deterioration in the economic situation and outlook since the autumn and the importance of reflecting this in the annual exercise of assessing Member States' Stability and Convergence Programmes.

10 Feb-09: G20 Immediate and Medium Term Actions

by the G20

Risk Management

Immediate Actions by March 31, 2009: Regulators should develop enhanced guidance to strengthen banks’ risk management practices, in line with international best practices, and should encourage financial firms to reexamine their internal controls and implement strengthened policies for sound risk management...

Medium -term actions: International standard setting bodies, working with a broad range of economies and other appropriate bodies, should ensure that regulatory policy makers are aware and able to respond rapidly to evolution and innovation in financial markets and products. Authorities should monitor substantial changes in asset prices and their implications for the macroeconomy and the financial system...

Read all details at: http://www.g20.org/

9 Feb-09: FRSGlobal Comment Piece on US Senate Banking Committee

by FRSGlobal

This comment piece is an analysis of the Senate Banking Committee’s special report on regulatory reform: 5th February 2009.

Congressional Oversight Panel: "COP (Congressional Oversight Panel) released its special report on regulatory reform today. The report discusses how regulation would have averted the crisis that we are in today, and how the implementation of smart regulation will help the United States prevent another financial crisis and determine our economic success in the years to come."

FRSGlobal CoREXpert comment: The U.S. Senate Banking Committee has been working hard the last few days finalizing their analysis on the Modernization of the U.S. Financial
Regulatory System. The Special Panel for the Banking Committee identified eight specific areas where they plan on creating reform and the corresponding new rules to govern the increasingly complex financial system.

Read the report here.

9 Feb-09: Leveraged Buyouts in Banking, Inefficient, Ineffective and ‘Ceased to Be’

by John A Morrison, Asymptotix

The simple fact is that the Leveraged BuyOut (LBO) market is dead, just read anything by John Moulton of Alchemy Partners, the only deal on the table is now the Baugur empire, crumbling into bits and pieces like Rome in the face of the arrival of Attila the Hun (is my history accurate?). Some had dreamed that the LBO process was going to save banking and that private equity was going to ride to the rescue of the banks, for a while it seemed possible with JC Flowers, Cerberus and Texas Pacific sniffing around Northern Rock and Sandler O’Neil working the Diasporatic Mojo in Dublin but it was never going to happen, what the government advisers failed to consider (Merrill’s and Goldman’s) was that there is a circularity to an LBO of a bank which is that the LBO deal needs mezzanine finance (or liquidity [that alchemic]) to make the equity injection (or capitalisation) effective & the only way to get that is from another bank. It was Bank of Scotland who developed that business model after all. That deal structure doesn’t work when you are trying to take over a bank because no bank is going to lend to any other bank when it is explicitly the case that one of the banks needs capital. That is the systemic nature of banking.

This new academic paper from the planet brains at Stockholm School of Economics, Ohio State and the NBER, slices and dices how Private Equity used to function, back in the good old days & provides a quantitative analytic approach which explains how the LBO should function in an efficient market hypothetic, thus explaining why like the Monty Python parrot, the LBO has ceased to be.


7 Feb-09: No-One in the room understands the Accounts of RBOS, HBOS, HSBC or Barclays!

by John A Morrison, Asymptotix

Extracts from MINUTES OF EVIDENCE of the UK Treasury Select Committee, BANKING CRISIS hearings, Tuesday 13 January 2009, Westminster.

Mr. John Moulton (Alchemy Partnership): “Transparency for me does not cut it. Nobody in this room can read the accounts of an HSBC or a Barclays and claim that they understand them. There is nobody in the room who could do that.”


Chairman, (John McFall MP): Could you read Royal Bank of Scotland's or HBOS's accounts last year comfortably?

Mr. Jonathan Hayward, CEO, Independent Audit: “No, that is an entirely different question and our profession is culpable in that, that we have headed for compliance rather than communication. We are producing telephone directories of data!“

Chairman: “God help us if you cannot read it.”

Chairman: “Lastly, Mr. Nelson, given your expertise, from what I am told the report and accounts of HSBC last year were almost 500 pages. Could you with a good malt whisky sit down at the fireside one night and fully understand it, looking at that report?”

Mr. Brendan Nelson, (Vice-Chairman, KPMG): “It is not a book that you would read cover to cover - it is not a book - but if you have an interest in particular aspects it is quite a good dictionary to look in.”

Chairman: “You think there is maybe a good chance of getting drunk before you understood it!?”


7 Feb-09: National Australia Bank suspends Satyam outsourcing plans - The Australian

by Finextra

National Australia Bank is to put on hold plans to outsource more technology functions to troubled Indian IT services group Satyam. The bank announced the decision in briefings with staff and 100 Satyam employees currently working on contract in Melbourne, the Australian newspaper reports, citing sources close to the company.

"It has been decided that application development and maintenance work transitioned to Satyam in 2007 and 2008 will remain unchanged," a NAB spokesman told the paper. "However, until the longer term future of Satyam becomes clearer, NAB will suspend all work currently in the early stages of transition to Satyam. This work will continue to be carried out by NAB employees.

"As the longer term future of Satyam becomes clearer in the coming months, NAB will consider whether to continue to transition this work to Satyam or another offshore supplier."

Last month Satyam had its IT outsourcing contract with US-based State Farm Insurance terminated in the wake of revelations about a $1 billion accounting fraud at the Indian firm.

NAB drops Satyam from IT roster - The Australian.

6 Feb-09: Open Source and the Politicians in the United Kingdom

by The Inquirer

THE CONSERVATIVE Party's endorsement of Open Source software has started looking tired now they have repeated it for the third time in two years without actually committing it to policy. Tech journalists obediently ran with a story yesterday that the Conservatives were chewing over a report by Cambridge University Academic Mark Thompson that recommended reforming public procurement and adopting open source software. The Tories had circulated what was said to be the draft executive summary of Thompson's report, which they were considering "taking forward". But the report is now so old it has grown its own Unix beard.


6 Feb-09: UK needs debate on open source, not political opportunism

by The 451 Group

The UK’s Conservative Party has repeated its position that the use of open source software by central government could save the UK Government at least £600m per year. There are doubts, however, as there were when David Cameron talked up open source software in April last year, as to whether the party really “gets” open source, or is just taking an opportunity to take a dig at the Labour government.


5 Feb-09: New Research Technical Paper - "NowCasting" Irish GDP - Central Bank of Ireland

by Antonello D’Agostino, Kieran McQuinn and Derry O’Brien

Now-casting Irish GDP Antonello D’Agostino, Kieran McQuinn and Derry O’Brien. Within individual quarters of the year, the approach, enables the data flow on monthly information during the quarter to be exploited. A pseudo-real time data approach is followed in that the data availability situation, which exists at each quarter is replicated for the model estimates. In evaluating the now-casting model, we perform an out of sample simulation where the estimates of the model are compared with that of a benchmark approach. We find that the mean squared forecast errors for both the now-casts and the back-casts are considerably smaller than those of the benchmark model. Unsurprisingly, the later in the quarter the now-cast or the backcast is generated, the more accurate the estimate is relative to the observed series.


5 Feb-09: New Paper - New recipes for estimating default intensities

by Alexander Baranovski, Carsten von Lieres and André Wilch (all WestLB AG)

This paper presents a new approach to deriving default intensities from CDS or bond spreads that yields smooth intensity curves required e.g. for pricing or risk management purposes. Assuming continuous premium or coupon payments, the default intensity can be obtained by solving an integral equation (Volterra equation of 2nd kind). This integral equation is shown to be equivalent to an ordinary linear differential equation of 2nd order with time dependent coefficients, which is numerically much easier to handle. For the special case of Nelson Siegel CDS term structure models, the problem permits a fully analytical solution. A very good and at the same time simple approximation to this analytical solution is derived, which serves as a recipe for easy implementation. Finally, it is shown how the new approach can be employed to estimate stochastic term structure models like the CIR model.


5 Feb-09: TOGAF Version 9 -- The Open Group Architecture Framework

by The Open Group

Launched last week, The Open Group Architecture Framework (TOGAF) is a framework - a detailed method and a set of supporting tools - for developing an enterprise architecture. It may be used freely by any organization wishing to develop an enterprise architecture for use within that organization.


5 Feb-09: European Central Bank (ECB) Working Paper - INFINITE-DIMENSIONAL VARS & Factor Models

by The European Central Bank

Vector autoregressive models (VARs) provide a flexible framework for the analysis of complex dynamics and interactions that exist between variables in the national and global economy. However, the application of the approach in practice is often limited to a handful of variables which could lead to misleading inference if important variables are omitted merely to accommodate the VAR modelling strategy. Number of parameters to be estimated grows at the quadratic rate with the number of variables, which is limited by the size of typical data sets to no more than 5 to 7. In many empirical applications, this is not satisfactory.

This paper introduces a novel approach for dealing with the curse of dimensionality in the case of large linear dynamic systems. Restrictions on the coefficients of an unrestricted VAR are proposed that are binding only in a limit as the number of endogenous variables tends to infinity. It is shown that under such restrictions, an infinite-dimensional VAR (or IVAR) can be arbitrarily well characterized by a large number of finite-dimensional models in the spirit of the global VAR model proposed in Pesaran et al. (JBES, 2004). The paper also considers IVAR models with dominant individual units and shows that this will lead to a dynamic factor model with the dominant unit acting as the factor. The problems of estimation and inference in a stationary IVAR with unknown number of unobserved common factors are also investigated. A cross section augmented least squares estimator is proposed and its asymptotic distribution is derived. Satisfactory small sample properties are documented by Monte Carlo experiments.


5 Feb-09: The Forrester Blog - Is BI recession Proof?

by Forrester Research

Is the BI industry recession proof, or is the next soft-economy shoe--or heavy hammer--poised to drop on this segment’s unsuspecting heads? To some extent, I suspect that BI’s relative, perhaps short-lived, immunity from tough times is due to its use as a “recession-busting” tool for identifying areas to cut costs, consolidate operations, and boost revenues.


5 Feb-09: Is structured finance dead?

by The Financial Times Lex

Is structured finance dead? The market is certainly on life support: issuance of collateralised debt obligations and their synthetic equivalents has fallen from a peak of more than $350bn worldwide in the first quarter of 2007, according to Creditflux, to virtually nothing.

Securitisation remains a useful tool to spread risk but, if market participants cannot identify who is at risk and the extent of the risk they are exposed to – or would like to pass on – it is no wonder the system has seized up. Restoring trust in the “originate and distribute” model needs a wholesale injection of transparency, enforced by regulation.


5 Feb-09: BarCampBankLondon2

by John A Morrison, Asymptotix

I would really like to go to this event but I cannot unfortunately, I think the idea is just what is required right now;-


I must say the version to be held in Edinburgh in March seems to have its priorities in the right order, focussed on the Scotland / Ireland rugby match!

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