Fintech Thrust Seminar | Theory of Credit Rating, Capital for Loss Distribution, Theory of Loss-Given Default, and Theory of Liquidity Premium -- Financial Risk Management and Basel Banking Accord from mathematical and theoretical views
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Theory of Credit Rating, Capital for Loss Distribution, Theory of Loss-Given Default, and Theory of Liquidity Premium -- Financial Risk Management and Basel Banking Accord from mathematical and theoretical views
Abstract:
A summary of my recent researches in financial risk management
1. Theory of Time-Consistent Credit Rating is a universal methodology that can unify all existing credit rating systems including agency ratings, banks' ratings and ratings produced by academic researchers. This behavior-based mathematical framework can incorporate credit ratings by various methods, PDs estimated through different approaches, and import regulations (Loss Allowance and Capital) in a consistent and mathematical fashion. Our theory can solve many important issues such as comparing and measuring the differences of different rating systems, accurately converting ratings, and quantitatively interpreting regulatory requirements.
2. An extension of Basel's capital formula which is based on Vasicek Single Factor Loss Model (with constant PD and asset correlation). It was extended to arbitrary PD distributions and varying correlations
3. Loss-Given-Default (LGD) is of equal importance with the PD. Yet, nearly no theoretical researches were completed. Based on its behaviors, I have obtained the theoretical calculation formulae and proved a uniqueness theorem. In other words, any LGD theory that describes the desired LGD behaviors will be equivalent to my theory.
4. Theory of Liquidity Premium: Liquidity premium seems a myth to many researchers. Does it exist? How do we describe and calculate it theoretically? I proved the existence of liquidity premium in general asset trading and derived closed formulae for calculations.
Dr. Yimin Yang is a Co-founder, Board Director, and Chief Risk Officer of Loyal Trust Bank. Prior to his current position, he served as the first-ever Senior Director Partner at Protiviti (One of the largest consulting firms in USA). He built and led the credit risk analytics department and the market risk analytics department at PNC bank and Truist Bank. Graduated from Peking University, with a Ph.D. in mathematics from University of Chicago, a Master in Computer Networking from Carnegie Mellon University, and a Master from the Mathematics Institute of Academia Sinica, he worked as a faculty at University of Minnesota before he joined the financial industry. Currently, he is a Professor of Practice at HKUST (Guangzhou), and the Chairman of Pacific Financial Professional Association.