bluuebunny/crossref_metadata_2025 huggingface dataset:
The Impact of Boundary‐scan on Surface Mount Technology in Design, Manufacturing and System Test
Authors: Adams R. , Spitz P. , Vahey W.
Published: February 2008

With the emergence of surface mount technology and, more recently, advances in packaging technologies (i.e., ball grid arrays), test continues to be a complex, time‐consuming process and, in the limit, unfeasible. The adoption of IEEE 1149.1 boundary‐scan and the wide acceptance of this standard have resulted in a pragmatic test solution for densely packed SMT circuit boards. Many organisations have become extremely successful in manufacturing test through their commitment to boundary‐scan. Although boundary‐scan has alleviated many of the test engineer's problems, all but a handful of these organisations have a narrow focus of using boundary‐scan to benefit only manufacturing test. However, this same technology can be exploited in design, at the prototype debug stage, as well as at the system test level, whether it be in the factory or the field, yielding significant benefits throughout the entire product life cycle. Three case studies are reviewed to highlight the problems posed by SMT at prototype debug, manufacturing test and system level test. The impact of boundary‐scan is illustrated at each stage of a product's typical life cycle. The paper looks at some real applications and benefits of boundary‐scan at the board prototype stage, the manufacturing test stage, as well as at the system‐level stage. The data presented represent three distinct industries: computer manufacturing, telecommunications and automatic test equipment.
Feasibility Study of OSEE Inspection for Flux Residue on Electronics Assemblies
Authors: Welch C.S.
Published: February 2008

The technique of Optically Stimulated Electron Emission (OSEE) is considered as a method of inspecting printed circuit based electronics assemblies for flux residue immediately following production soldering. The technique has been used for several years by NASA and its contractors in the refurbishment of solid rocket motors for the Space Shuttle. The application to copper substrates and soldered copper substrates has shown sensitivity to small amounts of residues of some solder fluxes. The technique was extended for inspection of insulating substrates used in printed wiring board (PWB) construction by altering the measurement procedure to include charge replacement, thereby attaining measurement reproducibility. The results indicate that OSEE inspection of electronic assemblies for flux residues is feasible. An inspection based on this technology subjects the inspected object only to photons of ultra‐violet light and immersion in an inert gas, such as argon. It is potentially rapid enough to provide 100% inspection of boards processed on a production line, and it has potential spatial resolution of less than 1 micron.
Assembly with Conductive Adhesives
Authors: Gilleo K.
Published: February 2008

The electronics assembly industry has fortunately rediscovered conductive adhesives as the search for lead‐free joining materials and improved performance intensifies. Although these intrinsically clean bonding agents are often first sought for their favourable environmental attributes, many are surprised to find that conductive adhesives can solve old and new problems. Today, new polymer solders for SMT allow low temperature processing, finer pitch assembly and wider processing latitude while providing compatibility with a very much larger range of materials than solder. State‐of‐the‐art adhesives are oxide‐tolerant and absolutely no fluxing or cleaning is required. Adhesives work where solder cannot be used. What's more, polymer‐based solder alternatives can run on existing SMT lines — no new equipment is needed. Z‐axis, or anisotropic, bonding agents are uni‐directional conductive materials that solve fine pitch interconnect problems in several areas. The anisotropics now dominate the flat panel interconnect field. Nearly every LCD and other flat panel display is connected with a polymer adhesive. The Z‐axis adhesives are also beginning to enable high density multilayer circuits and MCMs to be built more effectively. Finally, Z‐axis appears to offer the simplest and most cost‐effective means for flip chip bonding. However, special equipment is required. The paper compares the metallurgical solder joint, the present de facto standard, with the polymer composite bond to highlight similarities and important differences. All types of conductive adhesives are discussed including the latest — Area Array Z‐axis types. Bonding materials, assembly processes and performance are also covered.
Reduced Oxide Soldering Activation (ROSA™) Production Compatibility Evaluation
Authors: Tench D.M. , Anderson D.P. , Jambazian P. , Kim P. , White J. , Hillman D. , Frommelt D. , Lucey G.K. , Gher T. , Piekarski B.
Published: February 2008

The recently developed Reduced Oxide Soldering Activation (ROSA™) method is shown to be compatible with long‐term use with mass soldering processes. Prototype regeneration cells operated for as long as six months with minimal maintenance retained their effectiveness for providing short wetting times under a variety of perturbations. The operating window for the process is wide and component degradation caused by exposure to the fully charged solution is minimal. The ROSA treatment provides soldering performance comparable to that attainable with a fully activated rosin flux and offers the promise of providing low soldering defect rates without the use of CFC solvents.
Procedures for Metallographic Examination and Mechanical Strength Testing of Fine Pitch Surface Mount IC Package Solder Joints
Authors: Yamada T. , Doyle R. , Barrett J.
Published: February 2008

The reduction in IC package lead pitches in surface mount solder assembly and the current high emphasis on quality and reliability of printed circuit assemblies have created a requirement for microanalysis of fine pitch solder joints in manufacturing situations. Of particular interest are metallographic analysis, detection of solder joint defects and mechanical strength testing of solder joints. Much has been published in the literature on the results of such evaluations in specific applications but little has been available on procedures for use in the microanalysis itself, particularly for fine pitch solder joints. Detailed procedures for fine pitch solder joint microanalysis, which the authors have verified down to 0.5 mm (0.02 in.) lead pitches, are presented. In particular, the authors present procedures for metallographic examination of tin‐lead and tin‐lead‐silver solder joints. In addition, test parameters are given for a repeatable technique of fine pitch solder joint mechanical strength testing that allows mechanical strength measurements to be obtained from almost every lead on a fine pitch surface mount IC package.
How Much Rework Is Too Much?: The Effects of Solder Joint Rework on Plated‐through Holes in Multilayer Printed Wiring Boards
Authors: Garrison A. , Lee M. , Park H.S. , Todd N.L.
Published: February 2008

In the assembly process of high reliability printed wiring boards (PWBs), rework cycles seem to be an unfortunate fact of life. The question repeatedly arises as to how many times a solder joint incorporating plated‐through‐holes (PTHs) can be reworked without degrading the configuration. By performing a controlled experiment, the authors were able to answer that question and make recommendations as to the limits that should be placed on the number of reworks. They were further able to look at the following factors: operators, board type, number of layers and solder temperature to determine which were the most significant in determining limits to the number of rework cycles. The results showed that the more layers the board contained, the more at risk the PTH was to rework‐induced defects. This perhaps defies conventional wisdom that the board type or temperatures were the driving contributors. The increased number of board layers corresponds to thinner dielectric layers. The experimental results were repeated in a theoretical review using a finite element analysis (FEA) model that was developed showing the thermally induced stresses in the solder joint and PTH region. For multilayer boards, it is recommended that rework be limited to three cycles. The present work shows that there is evidence of degradation by the fifth cycle on boards with thinner dielectric (10‐layer board, dielectric thickness 0.008 in.). By limiting the number of reworks, the risk of inducing failure mechanisms into PWAs (printed wiring assemblies) is dramatically reduced.
Application Model for Organic Solderability Preservatives
Authors: Wenger G.M. , Machusak D.A. , Parker J.L.
Published: February 2008

Organic solderability preservative (OSP) coatings are not new. They have been used successfully with aggressive water soluble flux for assembly of through‐hole only PWBs. However, the multiple heating cycles required for mixed technology assembly and use of no‐clean low solids flux (LSF) for wave solder assembly have placed a greater demand on the solderability protection provided by OSPs. Wetting balance and float testing were used to evaluate numerous OSPs as well as the potential for these surface finishes to be used for ‘No‐Clean’ assembly. Although these laboratory evaluations revealed that OSPs are not as robust as SnPb, they did indicate the assembly processes and materials which could work with OSPs. Additional simulated assembly trials with test vehicles confirmed that thick OSP pre‐flux coatings interfere with soldering and that the solderability of surfaces with thin OSPs degrades when heated in an air environment. Since none of the OSPs evaluated outperformed the imidazole currently in use at AT&T, a no‐clean LSF assembly production trial with a mixed technology telecommunication circuit pack was conducted to compare imidazole with hot air solder levelled surfaces. The production trial and laboratory evaluations resulted in the development of an application model. The elements of the application model are not complicated: (1) use thin OSPs, (2) avoid baking, (3) use as aggressive a flux as possible, (4) apply as much flux as possible, (5) apply the flux where you want solder to wet, and (6) use nitrogen inerted processes whenever possible. Combination of these elements has led to the successful implementation of OSPs for no‐clean assembly. Funding for this effort was obtained through the National Center for Manufacturing Sciences (NCMS) Printed Wiring Board Interconnect Program.
Examination of Various Soldered Surfaces and Electronic Components by Confocal Microscopy
Authors: Braterman P.S. , Marshall J.L. , Sees J. , Tan C. , Zhao J.
Published: February 2008

The unique advantages of confocal microscopy are used to explore four cases of interest: (i) voids in solder (depth and surface texture determined), (ii) steam vs ambient aged solder coupons (significant differences detected), (iii) integrated circuit construction (sub‐surface contamination by µm‐size particles observed) and (iv) circuit boards and solder pads (non‐destructive optical sectioning through no‐wash flux layers). It is shown that confocal microscopy strongly complements SEM (scanning electron microscopy); SEM alone presents an incomplete description of a solder surface and in fact can sometimes produce misleading results.
Fine Pitch Surface Mount Technology Assembly with Lead‐free, Low Residue Solder Paste
Authors: Artaki I. , Jackson A.M. , Vianco P.T.
Published: February 2008

Fine pitch (0.4 mm) surface mount assembly studies were conducted with several lead‐free solder pastes formulated with both traditional RMA (∼6% residue level) and low residue (1%) flux vehicles. The lead‐free solder alloys evaluated included the two baseline eutectic binary alloys, Sn‐Bi and Sn‐Ag, and three new lead‐free solder compositions: (1)91.8Sn–4.8Bi–3.4Ag (wt%) developed at Sandia Laboratories, (2) 77.2Sn–20ln–2.8Ag (Indalloy 227) developed at Indium Corporation of America and (3) 96.2Sn–2.5Ag–0.8Cu–0.5Sb (Castin) provided by AIM, Inc. The basic physical properties pertinent to assembly performance (melting temperature and wetting behaviour) were determined for each of the new alloys. Assembly performance was assessed as a function of circuit board surface finishes, thermal reflow profiles and solder paste flux composition. The feasibility of 0.4 mm pitch assembly was established with each of the lead‐free solder alloys investigated. No issues particular to the combined use of low residue flux vehicles and lead‐free solder powders were identified. The circuit board laminates did not suffer any thermal degradation effects (reflow was performed in an inert atmosphere). All lead‐free solders, compared with the Sn‐Pb eutectic solder, exhibited reduced spreading on the circuit board lands after reflow. It was concluded that the performance of the new solder formulations is adequate for surface mount applications. Further differentiation among these solders will have to be based on their long‐term reliability performance. These studies are currently under way.
Lead‐free Solder Pastes Evaluation at Motorola Transmission Products Division
Authors: Akinade K. , Burgess R. , Campbell M. , Carver S. , Sanderson L. , Wade R. , Melton C.
Published: February 2008

The increased interest in the electronics industry to search for alternatives to lead‐containing solders is evidenced by the number of recently published articles on lead‐free solders in this journal and other journals. At the latest Surface Mount International conference, several papers were presented on lead‐free solder alloys, conductive adhesives and organic preservatives, all in search of replacements for lead‐containing finishes. The efforts to find a replacement for tin/lead are in response to possible legislation banning lead or possible taxation on the use of lead. In an attempt to reduce the use of lead in this company's assembly operation, five lead‐free solder pastes and four corresponding flux vehicles (for A, B, C and E pastes) were evaluated. All of the flux vehicles passed the standard industry tests except for two flux vehicles (pastes B and C) that failed the copper mirror test. An assembly trial of the lead‐free pastes was carried out by building liquid crystal display panels with minimal process modification. Printability, process compatibility and solder joint reliability were assessed. This paper describes the preliminary results of the authors' investigation.
The Effect of Product Formulation, Substrate Solderability and Reflow Atmosphere on Solder Paste Reflow Performance
Authors: Warwick M. , Chowdhary B.S. , Stanton N.
Published: February 2008

The resin activators' type and quantity in a solder paste have a significant effect on reflow behaviour. These interact with the effects of the oxygen content of the reflow atmosphere and the condition of the surfaces to be joined. While these parameters might be expected to influence solder paste reflow behaviour, more subtle effects related to the physical characteristics of the resin/solvent solution have also been observed.
People, Machines and Material
Authors: BORKES TOM
Published: February 2008

Most of us seem to be in a perpetual struggle to succeed (or, at worst, just survive) in our chosen careers, while simultaneously trying to prepare for the daunting challenges of the future. And today, this ‘future’ is only a year or two away. Growing up in New York in the 1950's, I remember the ‘future’ being talked about in terms of distant decades!
Reliability of Electronics in Harsh Environments
Authors: Brox B. , Tegehall P.‐E.
Published: February 2008

This paper reports experiences gained in several research programmes, showing the necessity to develop improved environmental tests that better accelerate the mechanisms that degrade electronics. The tests specified in standards today do not consider relevant failure mechanisms. The paper describes the authors' philosophy for performing reliability testing. Examples of various reliability tests are given.
Stencil Cleaning: An Area of Increasing Importance
Authors: Cala F. , Reynolds R.
Published: February 2008

Stencil cleaning has become both more difficult and more critical for modern surface mount technology. There is an increasing need for cleaning agents for stencils which are effective, safe for workers and safe for the environment. This paper describes a new laboratory test which was developed for predicting the performance of stencil cleaning formulations. A new aqueous, inorganic based cleaning agent has been developed which gives cleaning performance which was overall better than that of IPA. Testing was performed over a range of solder pastes. This performance advantage was confirmed with commercial stencil cleaning equipment. In addition to being very effective, this inorganic based stencil cleaner offers significant environmental and worker safety advantages.
High Quality Solder Pastes:
Authors: Miric A.Z.
Published: February 2008

As electronic devices have become more complex and interconnection density has increased, electronics manufacturers are facing new challenges to solder SMD packages with pitches down to 0.3 mm or less. To achieve positive results, all parameters throughout the soldering process have to be optimised. The first step on the SMT line is the application of solder paste. Any faults at this stage (material, equipment or process related) will be carried through the entire production line. Solder paste is one of the most important factors in the whole chain. It is important to understand the influence of the metal powders, activators, solvents and additives on soldering of ultra‐fine pitch SMDs. Special attention must be paid to the powder (fine pitch devices demand a fine grain in the solder paste). The reliability of the soldered joints is mainly dependent (apart from on the solder paste) on the solder quantities applied to the component pads, the tolerance regarding the shape and size of stencils + PCBs + SMDs, the accuracy of mounting and printing, and on the reflow profile. It is important to design the stencil apertures with sufficient surface area to provide enough surface tension (between the paste and the component pad) to pull the solder paste out of the stencil, while keeping the component pad small enough to match the lead of the component. As the wetting of fine pitch components is especially critical, it is necessary to pay more attention to the design of the reflow profile. It is recommended to solder ultra‐fine pitch components under nitrogen, as this enlarges the process window considerably.
The Impact of Soldering Temperatures on No‐clean Hand Soldering Processes
Authors: Oh E.M.
Published: February 2008

PCB manufacturers are switching from the use of RMA fluxes in their soldering and rework processes to low residue type (i.e., ‘no‐clean’) fluxes. Unfortunately, successful changeover is not simply a matter of substituting a no‐clean into an existing RMA process. Soldering process parameters must change, necessitating an understanding of the interplay between flux chemistry and heat delivery. Higher temperatures can result in an effective decrease in the concentration of the active fluxing agents. Also, data show a decrease in the inherent wetting force of a no‐clean flux with increasing temperature. These two factors reduce fluxing action below the rate of oxidation occurring at the solder connection and the soldering iron tip. These can lead to incomplete surface cleaning and inefficient heat transfer, resulting in poorly soldered connections. Lower solder joint defect rates are obtained with no‐clean solders and fluxes when soldering temperatures are reduced to a minimum.
Voiding in BGAs
Authors: O'Hara W.B. , Lee N.‐C.
Published: February 2008

Voiding in BGA assembly using SN63 solder bumps is primarily introduced at board‐level assembly stage. On the pretinned PCBs, voiding of BGA joints increases with increasing solvent volatility, increasing metal content and increasing reflow temperature, and with decreasing powder size. This can be explained by a viscosity dictated flux‐exclusion‐rate model. In this model, a higher viscosity in the fluxing medium at reflow temperature could hinder the exclusion of flux from the interior of the molten solder, hence increase the chance of outgassing due to the increasing amount of entrapped flux, and consequently result in higher voiding in BGA assembly. Flux activity and reflow atmosphere appear to have a negligible effect on voiding when the solderability of the immobile metallisation is not a concern. An increase in void content is accompanied by an increase in the fraction of large voids. This suggests that, similar to voiding phenomena in the SMT process, factors causing voiding in BGA will have an even greater impact on joint reliability than shown by the total‐void‐volume analysis results.
TELEMARKETING AS A PROMOTIONAL TOOL—ITS EFFECTS AND SIDE EFFECTS
Authors: Schneider Kenneth C.
Published: February 2008

Telemarketing has added a new medium to the marketer's bag of tricks. This article briefly discusses the benefits and limitations of telemarketing as part of an overall marketing campaign. It then proceeds to discuss (via some new findings) the potential side effects that telemarketing may have on the image of the firm using it.
PUTTING STRATEGY INTO PROMOTION MIX DECISIONS
Authors: Petit Thomas A. , McEnally Martha R.
Published: February 2008

The promotion mix is the combination of personal selling, advertising, and sales promotion used to achieve marketing objectives. The objective‐and‐task method is used in practice to develop a single promotion mix plan. This is practical but has drawbacks: (1) only one promotion strategy and mix is considered, and (2) decision making is taken out of the hands of senior marketing management. This paper sets forth a decision‐making process by which alternative promotion strategies and mixes are generated so that senior marketing management can choose the one that is most promising.
MARKETING CONSEQUENCES OF INFLATIONARY PRICING
Authors: Liebermann Yehoshua
Published: February 2008

Currently, inflation seemingly has ceased to be a serious problem to several western economies. Yet, its potential threat is not necessarily over, and changes in overall economic policies may reactivate inflationary pressures. Furthermore, in many industrialized as well as less developed countries, inflation is still a central problem whose influences cannot he ignored especially for exporters. It is the purpose of this article to analyze the effect of inflationary pricing on various dimensions of marketing activity. At this stage the emphasis is mainly theoretical. Nevertheless, the time to prepare for inflation is before it occurs.
AN ALTERNATIVE TO NEW PRODUCT DEVELOPMENT—BUSINESS PRODUCTS FOR CONSUMER MARKETS
Authors: Solomon B. Douglas
Published: February 2008

Theodore Levitt's classic article “Marketing Myopia” pointed up the potentially catastrophic results possible when companies and industries view their products too narrowly. This piece discusses an extension of that concept: companies making products for the industrial, business, and commercial market frequently obtain fewer benefits (revenue, profitability, market share) than they might because they have defined their customer too narrowly. In many cases, a company can profitably look beyond the relatively few business users of a product.
Hedging Financial Risks Subject to Asymmetric Information
Authors: Arvanitis Angelo , Gregory Jonathon , Martin Richard
Published: February 2008

This article presents a generalized approach to pricing risk in markets that are subject to information asymmetries. Asymmetric information can result in prohibitive trading costs and prevent the otherwise mutually beneficial exchange of risk. When dealing with risks typically transferred outside the capital markets, the problem of asymmetric information is even more pronounced than with financial risks, even risks priced in less liquid financial markets. A product that immunizes a client against a certain business or insurance event represents a challenge for pricing, as the client has superior information about the risks faced. The authors propose that in an incomplete market, the efficient solution is a dual‐triggered, contingent contract based on “indifference pricing” (i.e. reservation price) of residual variance.
Weather Derivatives and Their Implications for Power Markets
Authors: Ellithorpe Don , Putnam Scott
Published: February 2008

Major segments of the U.S. economy are affected by weather. With the emergence of weather derivatives, exposure to weather‐related risk has evolved from being merely accepted. As a result, weather risk management strategies are increasingly being adopted in strategic decision‐making by senior management. Weather derivatives enable managers to focus on core operating risks by trading away those business exposures related to temperature, precipitation, snow level, etc. These contracts offer a unique opportunity to discretely trade a new category of risk, which was previously considered to be an inevitable cost of doing business. This article describes the weather derivatives market and its contracts and outlines the principles of pricing and risk analysis in weather markets. In closing, the article discusses the application of these products for portfolio and business risk management using illustrative examples from the energy markets.
Another Perspective on Credit Risk Transfer and Asset Securitization
Authors: Cantor Richard , Rouyer Stanislas
Published: February 2008

Although issuers may benefit generally from securitization, some asset securitizations transfer more credit risk than others. When a lender uses securitization to replace on‐balance‐sheet financing, that lender transfers to investors some of the risks, and, in the form of credit enhancements, some of the offsetting, i.e., claims‐paying, economic resources (e.g., assets, cashflows), as well. Therefore, securitization only reduces an issuer's net (i.e., residual) exposure to credit losses when a securitization has transferred proportionately more credit risk than claims‐paying assets. The authors discuss the distinction between “gross” versus “net” transfers of credit risk. To illustrate this point, they provide conceptual examples of the net effect of an asset securitization on the residual credit risk retained by an issuer. In these examples, providing credit enhancement (e.g., overcollateralization, subordination) may implicitly lever or delever an issuer's balance sheet. The authors outline the general conditions under which this indirect economic recourse to the issuer, in effect a form of “self‐insurance,” may result in a net dilution of the claims of unsecured creditors.
Customizing Indemnity Contracts and Indexed Cat Bonds for Natural Hazard Risks
Authors: CROSON DAVID C. , KUNREUTHER HOWARD C.
Published: February 2008

This article examines how reinsurance coupled with new financial instruments can expand coverage to areas exposed to catastrophe losses from natural disasters, and demonstrates how reinsurance and the catastrophe‐linked financial instruments can be combined to lower the price of protection from its current level. A simple example illustrates the relative advantages and disadvantages of pure catastrophic bonds and pure indemnity reinsurance in supporting a structure of payments contingent on certain extreme events occurring. The authors suggest ways to combine these two instruments using customized catastrophe indices to expand coverage and reduce the cost of protection. This article states six principles for designing catastrophic risk transfer systems and discusses practical issues for implementation, and then concludes with suggestions for future research.
Changing Regulatory Capital to Include Liquidity and Management Intervention
Authors: MARRISON CHRIS , SCHUERMANN TIL , STROUGHAIR JOHN D.
Published: February 2008

Since 1996, the Bank for International Setdements (BIS) has set the capital level that banks must hold against market risks by a specific formula. This article presents a practical approach for incorporating the effects of asset illiquidity and management response lags in setting regulatory capital levels to account for market risk. According to the BIS guidelines, capital should be a function of the effectiveness of limit management and market liquidity, because actively managing limits and positions can significantly reduce the risk of a trading operation. Although this approach represents an improvement over previous methods of setting capital, significant limitations still remain, namely, liquidity constraints and response lags in management intervention, which increase portfolio risk. The authors suggest specific amendments to the reg‐ulatory capital guidelines that may mitigate both of these limitations
An Empirical Assessment of a Simple Contingent‐Claims Model for the Valuation of Risky Debt
Authors: BOHN JEFFREY R.
Published: February 2008

In this second installment, the author addresses some of the problems associated with empirically validating contingent‐claim models for valuing risky debt. The article uses a simple contingent claims risky debt valuation model to fit term structures of credit spreads derived from data for U.S. corporate bonds. An essential component to fitting this model is the use of expected default frequency; the estimate of the firms' expected default probability over a specific time horizon. The author discusses the statistical and econometric procedures used in fitting the term structure of credit spreads and estimating model parameters. These include iteratively reweighted non‐linear least squares are used to dampen the impact of outliers and ensure convergence in each cross‐sectional estimation from 1992 to 1999.
Using Cat Models for Optimal Risk Allocation of P&C Liability Portfolios
Authors: Zeng Lixin
Published: February 2008

This article provides a general introduction to using catastrophe models to optimally manage the risk of a portfolio of Property & Casualty (P&C) liabilities. There is increasing emphasis on the enterprise‐wide allocation of risk capacity for all financial intermediaries, e.g. banks, pensions, investment funds, as well as life and P&C insurers. The optionality (the skewness, kurtosis, and correlation with asset risk) of liability risks contribute substantially to earnings volatility. The severity of low‐probability events, i.e. natural catastrophes (e.g. hurricanes, earthquakes), combined with increases in geographic concentrations of wealth can adversely affect the diversification of the liability risk at the portfolio level. Since in both finance and insurance, optimally allocating risk at the portfolio level is generally based on (linear) combinations of nonlinear risks, finding an optimal allocation is not always tractable. The author describes a well‐established optimization algorithm and produces a reasonable approximation for an optimal solution.
Applying Scenario Optimization to Portfolio Credit Risk
Authors: Mausser Helmut , Rosen Dan
Published: February 2008

Standard market risk optimization tools, based on assumptions of normality, are ineffective for evaluating credit risk. In this article, the authors develop three scenario optimization models for portfolio credit risk. They first create the trading risk profile and find the best hedge position for a single asset or obligor. The second model adjusts all positions simultaneously to minimize the regret of the portfolio subject to general linear restrictions. Finally, a credit risk‐return efficient frontier is constructed using parametric programming. While scenario optimization of quantile‐based credit risk measures leads to problems that are not generally tractable, regret is a relevant and tractable measure that can be optimized using linear programming. The three models are applied to optimizing the risk‐return profile of a portfolio of emerging market bonds.
Risk Management Revolution: The Morning After
Authors: Tilman Leo M.
Published: February 2008

Today, most institutional investors, practitioners, and regulators seem relatively content with the current state of the art. Although most academics and practitioners fully recognize the conceptual and technological limitations of the “state‐of‐the‐practice” models, systems, and policies, it would appear that no urgent issues remain. However, this author argues that the risk management revolution is not over, and poses some fascinating questions that remain unanswered. The author discusses some challenges that practitioners face and proposes a line of inquiry for future commentary.
The Value of Integrative Risk Management for Insurance Products with Guarantees
Authors: CONSIGLIO ANDREA , COCCO FLAVIO , ZENIOS STAVROS A.
Published: February 2008

Insurance liabilities are converging with capital markets products (e.g. derivatives and securitizations), thereby increasing the demand for integrated asset and liability management strategies. This article compares the value‐added by an integrative approach‐based on scenario optimization modelling‐relative to traditional risk management methods. The authors present some examples of products offered by the insurance industry in Italy, and apply the results of the analysis to the design of competitive insurance policies.
Estimating Credit Risk Capital: What's the Use?
Authors: KUPIEC PAUL
Published: February 2008

Risk capital is an important input for management functions. Capital structure decisions, capital budgeting, and ex post performance measurement require different measures of risk capital. While it has become common to estimate risk capital using VaR models, it is not clear that VaR‐based capital estimates are optimal for applications to management functions (e.g. risk management, capital budgeting, performance measurement, or regulation). This article considers three typical problems that require an estimate of credit risk capital: an optimal equity capital allocation; an optimal capital allocation for capital budgeting decisions; and an optimal capital allocation to remove moral hazard incentives from a compensation contract based on ex post performance. The optimal credit risk capital allocation is different for each problem and is never consistent with a credit VaR estimate of unexpected loss. The results demonstrate that the optimal risk capital allocation depends on the objective.
Applying Portfolio Credit Risk Models to Retail Portfolios
Authors: BUCAY NISSO , ROSEN DAN
Published: February 2008

In recent years, several methodologies for measuring portfolio credit risk have been introduced that demonstrate the benefits of using internal models to measure credit risk in the loan book. These models measure economic credit capital and are specifically designed to capture portfolio effects and account for obligor default correlations. An example of an integrated market and credit risk model that overcomes this limitation is given in Iscoe et al. [1999], which is equally applicable to commercial and retail credit portfolios. However, the measurement of portfolio credit risk in retail loan portfolios has received much less attention than the commercial credit markets. This article proposes a methodology for measuring the credit risk of a retail portfolio, based on the general portfolio credit risk framework of Iscoe et al. The authors discuss the practical estimation and implementation of the model. They demonstrate its applicability with a case study based on the credit card portfolio of a North American financial institution. They also analyze the sensitivity of the results to various assumptions.
CDOs as Self‐Contained Reinsurance Structures
Authors: LANE MORTON N.
Published: February 2008

In the convergence between the capital markets and reinsurance markets, the prime mover of insurance risk into capital markets have been investment banks. Also, among the most active leveraged underwriters of capital market credit risk are reinsurers, as opposed to hedge funds or banks. A key example of the institutional consequences of “convergence,” in particular of product design are Collateralized Debt Obligations (CDOs). CDOs combine a managed portfolio of bonds or loans with a hierarchy of claims or priority of loss payments (typical of insurance structures). Early buyers of CDOs were typically high‐yield bond portfolio managers. More recently, reinsurers have come to appreciate the “insurance nature” of these CDO structures, and multiline reinsurers have begun to support CDOs via financial guarantees.
Measuring Predictive Accuracy of Value‐at‐Risk Models: Issues, Paradigms, and Directions
Authors: TILMAN LEO M. , BRUSILOVSKIY PAVEL
Published: February 2008

Value‐at‐Risk (VaR) has become a mainstream risk management technique employed by a large proportion of financial institutions. There exists a substantial amount of research dealing with this task, most commonly referred to asVaR backtesting. A new generation of “self‐learning” VaR models (Conditional Autoregressive Value‐at‐Risk or CAViaR) combine backtesting results withex anteVaR estimates in an ARIMA framework in order to forecast P/L distributions more accurately. In this commentary, the authors present a systematic overview of several classes of applied statistical techniques that can make VaR backtesting more comprehensive and provide valuable insights into the analytical properties of VaR models in various market environments. In addition, they discuss the challenges associated with extending traditional backtesting approaches for VaR horizons longer than one day and propose solutions to this important problem.
Assessing Market Risk for Hedge Funds and Hedge Fund Portfolios
Authors: LHABITANT FRANÇOIS‐SERGE
Published: February 2008

The author suggests an empirical model to analyze the investment style of individual hedge funds and fund of funds. This approach is based on a mixture of the style analysis approach suggested by Sharpe [1988], the factor push approach used in stress testing, and historical simulation. The parameter estimates from this model are inputs in the Value‐at‐Risk analysis for a sample of 2,934 funds over the 1994–2000 period. The in‐sample and out‐of‐sample results suggest that the proposed approach is useful and may constitute a valuable tool for assessing the investment style and risk of hedge funds.
Estimating the Failure Probabilities of Financial Institutions: A Simple Approach
Authors: DOWD KEVIN
Published: February 2008

This article uses a Value‐at‐Risk approach to derive an estimator of the failure probability of a financial institution. The proposed approach can be applied to any profit/loss distribution, although Extreme Value (EV) theory also tells us that the most appropriate distributions are EV. The estimator suggested here is superior to the “Z” indicator of failure risk, which is sometimes used in the literature. Illustrative results confirm that the distribution selected makes a considerable difference to the results, and that estimates of failure probabilities based on the assumption of normality are too low to be valid.
Territorial Diversification of Catastrophe Bonds
Authors: WOO GORDON
Published: February 2008

One aspect of the growing issuance in catastrophe bonds is the increasing geographic diversity of coverage. Although catastrophe bonds initially focused on a single peril and territory, more recently they have been structured with independent multiple event triggers, differing according to peril and territory. This paper reviews the territorial development of catastrophe bonds and explores the geographical horizon for new issues.
Stirrings in Secondary Markets
Authors: LANE MORTON N.
Published: February 2008

In the insurance‐linked securities (ILS) market, where trends in underlying (reinsurance) prices are hard for outsiders to discern, secondary market prices could provide valuable investor information. So far, the market has provided little price information aside from new issue prices. The author provides his views on what behavior might be expected in a robust ILS secondary market, what information might be obtained, and how value changes might be measured and interpreted.
Untangling Spreads: Risk, Credit, Liquidity and All That
Authors: TILMAN LEO M. , COHLER GENE
Published: February 2008

This commentary discusses issues related to the important task of separating the spreads of fixed income securities into various components, related to liquidity, credit, and the duration and convexity of cashflows. This treatment is intended to provide intuition and a general framework for thinking about spread dynamics, rather than a mathematically rigorous treatment of the topic. In addition to being an introduction for those who are unfamiliar with the fundamentals of the market dynamics of spreads, the article also serves as a commentary and reminder to those practitioners with more experience in the analysis of spreads.
Asset/Liability Management for Insurers in the New Era: Focus on Value
Authors: BABBEL DAVID F.
Published: February 2008

While asset/liability management (A/L M) has been applied widely by insurers for 15 years, it has had mixed results. This article describes how initial efforts were unsuccessful, due to the focus on accounting values rather than economic values. The author asserts that insurers must rectify this misstep before A/L M can become a useful tool for them. Several forces are combining to ensure that this takes place in the near future.
Life Insurance Contracts with Embedded Options
Authors: LØCHTE JØRGENSEN PETER
Published: February 2008

This article presents a model for the fair valuation of a large class of insurance and pension liabilities. Life insurance companies and pension funds often issue policies/contracts with embedded options such as minimum return guarantees and bonus and surrender options. Until recently, most companies have neglected the proper valuation and risk management of these contingent claims. Recent recommendations from FASB and IASC have forced companies to revise their policies; the common theme in the recommended new accounting standards is the application of market or fair valuation principles throughout the balance sheet. In order to implement mark‐to‐market accounting, financial models are needed. The author presents a model of this type, discusses its implementation, and illustrates its potential usefulness with numerical examples. He concludes that minimum return guarantees can become very valuable, insolvency risk can be significant in realistic scenarios, and effective regulatory intervention rules can be of significant value to policyholders.
Asset/Liability Management for Pension Funds Using CVaR Constraints
Authors: BOGENTOFT ERIK , EDWIN ROMEIJN H. , URYASEV STANISLAV
Published: February 2008

This article studies formal optimal decision approaches for a multi‐period asset/liability management model for a pension fund. The authors use Conditional Value‐at‐Risk (CVaR) as a risk measure, the weighted average of the Value‐at‐Risk (VaR) and those losses exceeding VaR. The model is based on sample‐path simulation of the liabilities and returns of financial instruments in the portfolio. The same optimal decisions are made for groups of sample‐paths, which exhibit similar performance characteristics. Since allocation proportions are time‐dependent, these techniques are more flexible than more standard allocation procedures, e.g. “constant proportions.” Optimization is conducted using linear programming. Compared with traditional stochastic programming algorithms (for which the problem dimension increases exponentially in the number of time stages), this approach exhibits a linear growth of the dimension. Therefore, this approach allows the solution of problems with very large numbers of instruments and scenarios.
Design and Pricing of Equity‐Linked Life Insurance under Stochastic Interest Rates
Authors: RITA BACINELLO ANNA , PERSSON SVEIN‐ARNE
Published: February 2008

The authors present a model that incorporates stochastic interest rates to value equity‐linked life insurance contracts. The model generalizes some previous pricing results of Arne and Persson [1994] that are based on deterministic interest rates. The article also proposes and compares a design for a new equity‐linked product with the periodical premium contract of Brennan and Schwartz [1976]. The advantages of the proposed prod‐uct are its simplicity in pricing and its ease of hedging, by using either by long positions in the linked mutual fund or by European call options on the same fund.
An Extreme Value Theory Approach to Calculating Minimum Capital Risk Requirements
Authors: BROOKS CHRIS , CLARE ANDREW D. , PERSAND GITA
Published: February 2008

This article investigates the effect of modeling extreme events on the calculation of minimum capital risk requirements for three LIFFE futures contracts. The use of internal models will be permitted under the European Community Capital Adequacy Directive II and will be widely adopted in the near future for determining capital adequacies. Close scrutiny of competing models is required to avoid a potentially costly misallocation of capital resources, to ensure the safety of the financial system. The authors propose a semi‐parametric approach, for which extreme risks are modeled using a generalized Pareto distribution, and smaller risks are characterized by the empirically observed distribution function. The primary finding of comparing the capital requirements based on this approach with those calculated from both the unconditional density and from a conditional density (a GARCH(1,1) model), is that for both in‐sample and out‐of‐sample tests, the extreme value approach yields superior results. This is attributable to the fact that the other two models do not explicitly model the tails of the return distribution.
Hypothesis Test of Default Correlation and Application to Specific Risk
Authors: KIM JONGWOO
Published: February 2008

Credit migration correlation is a critical assumption for the integration of market risk and credit risk within enterprise‐wide risk management. This article describes hypothesis testing performed on credit migration correlation, based on two models: 1) a factor model and 2) an asset‐value model. These tests involve both the correlation between obligors and the correlation between credit migration events and systematic market risk factors. The author concludes from the test results that over shorter risk horizons (e.g., biweekly or monthly) where all relevant underlying processes are distributed multi‐variate normal, non‐zero positive correlation weights overestimate risk capital requirements, on average.
The Impact of Liquidity Risk on the Prices of Swaps with Default Risk
Authors: YE GEORGE L.
Published: February 2008

Liquidity risk, i.e., the likelihood that a swap can be “sold” (i.e., assigned) may affect swap prices. This article addresses the importance of liquidity risk as a factor in the valuation of swaps, which are subject to default risk. The author presents a model for pricing these swaps by incorporating a proxy for liquidity risk. Using the model, the author finds that the effects of liquidity risk may partially offset the effects of default risk.
The Properties of Incremental VaR in Monte Carlo Simulations
Authors: WANG ZHENG
Published: February 2008

Incremental value‐at‐risk (VaR) is used to measure the effectiveness of diversification. However, the statistical properties of the estimated incremental VaR have not been fully explored. In this article, the author compares incremental VaR with other VaR‐based risk measures. The article derives the exact distribution of the estimated incremental VaR, when obtained using Monte Carlo simulation. The approach obtains general results with the implication that incremental VaR is dependent on the simulation method.
Thoughts on Credit Risk Diversification: Comparing Credit Ratings Volatility Across Asset Classes
Authors: RUBINSTEIN PETER , TILMAN LEO M. , TODD ALAN
Published: February 2008

This article discusses credit migration of diversified loan pool securitizations, as evidenced by the ratings transitions of mortgage‐backed securities (MBS) and asset‐backed securities (ABS). The authors contrast the ratings (i.e., credit) stability of MBS and ABS relative to ratings migration of general obligation corporate credit. They also use holding period returns to compare the total return portfolios of MBS/ABS to portfolios of senior unsecured corporate obligations.