Tradition and Innovation


The Carbon Connection

Fraud and Carbon Markets

Introduction to the Theories and Varieties of Modern Crime

Forensic Statistics and Case Studies

Carbon allowances: A new financial asset

From market fundamentals to derivatives

Solving Modern Crime in Financial Markets

Analytics and Case Studies

Normes comptables et crise financière

Propositions pour une réforme du système de régulation comptable

Technical Analysis in the Commodity, Energy & Power Markets

Discussions with Investment Managers and Analysts

Comment la régulation financière peut-elle sortir l'Europe de la crise ?



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Risk analytics

Computing a standard error for the Gini coefficient: an application to credit risk model validation

Resampling approaches were the first techniques employed to compute a variance for the Gini coefficient. Few authors showed that Gini's coefficient measure can be obtained from a synthetic ordinary linear regression (OLS) based on the data and their ranks, thereby providing also with an exact analytical standard error. We develop these techniques for assessing the quality of credit models and for measuring the confidence interval of Gini coefficient. A special attention is given to low defaults and/or small length datasets and low quality models. In consequence we develop a new sampling-based method (F-Gini) for measuring the standard error of the Gini coefficient more adapted for these situations.

Default probability assessment for low default portfolios through resampling methods

The aim of this paper is to address the validity of default probability models calibrated on datasets with very low (or none) number of defaults. For these cases the credit models produce very low default probabilities, thereby imposing the computation of their upper bound limits for a given confidence level. The few approaches, proposed by the specialized literature for computing the upper bound of the default probability are based on the confidence intervals computed via probabilistic, Bayesian or analytic methods. We propose a benchmark of these methods and we explore the cases for which they are the most suited for. We propose a new method for computing the upper bound of the default probability in low default portfolios, employing resampling approaches. For the special case of no default portfolios we investigate an adjustment based on non-Gaussian behavior of the distance to default. We address also the issue concerning the dependency between defaults using non-Gaussian copulas.

Risk Assessment for a Structured Product Specific to the CO2 Emission Permits Market

The aim of this work is to use a new modeling technique for CO2 emission prices, in order to estimate the risk associated with a related, structured product. After a short discussion of the specificities of this market, we investigate several modeling methods for CO$_2$ emission prices. We use these results for risk modeling of the swap between two CO2 related instruments: the European Union Allowances and the Certified Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of different models on the risk measure and the allocated capital.

Optimal structure of Central Counterparties Clearing Houses for minimizing default risk

After the recent crisis Central Counterparties Clearing Houses (CCP) gain momentum with the new regulations concerning the clearing of over the counter derivatives A classic CCP has a multi-'tranche' structure that allows to absorb the losses generated due to members defaults. The 'tranches' are Initial Margin, Default Funds of the defaulter, CCP Equity, Default Funds of the remaining clearing members and Additional undertaking from survivor members. In the case of the default of a Clearing Member the loss will be amortized by each tranche depending on the magnitude of the exposure at that time.

Financial crime and Misconduct

Statistical Evidence of Tax Fraud on the Carbon Allowances Market

The aim of this paper is to show evidence and to quantify with forensic econometric methods the impact of the Value Added Tax fraud on European carbon allowances markets. This fraud mainly occurred at the beginning of between the end of 2008 and the beginning of 2009. In this paper we explore the financial mechanisms of the fraud and the impact on the market behavior as well as the reflexion on its econometric features. In a previous work, we showed that the European carbon market is strongly influenced by fundamentals factors as oil, energy, gas, coal and equity prices. Therefore, we calibrated Arbitrage Pricing Theory-like models and showed that they have a good forecast capacity. Those models enabled us to quantify the impact of each factor on the market. In this study, we focused more precisely on the benchmark contract for European carbon emissions prices over 2008 and 2009.

Aftermath of the VAT Fraud on Carbon Emissions Markets

The purpose of this paper is to recognize the effect of the VAT fraud upon the market prices and to assess the occurrence of money laundering on the carbon emissions market. We present an analytic breakdown of the MTIC pocketed funds and estimate the bearish impact of the VAT trade on the carbon prices. The VAT carousel could be also used for all the steps of money laundering given the lack of control and surveillance of various trading firms. Findings present an analytic breakdown of the MTIC pocketed funds and a bearish impact of 2-3 euros upon the carbon prices. We explain also the origin of a relative persistence of high volumes on the spot market, by proposing a model of placement, layering and integration steps on the carbon emissions market, similar with the VAT carousel. This paper is the first study that quantifies the market manipulation effect due to VAT fraud. The work is also unique as it provides with the first estimation of money laundered on the carbon emission market. EUA, VAT, carbon, money laundering

Market Manipulation and Moral Hazard: Can the LIBOR be Fixed?

The aim of this work is to focus on the recent allegations of LIBOR rates manipulation. We show clear evidence that the individual contribution of each bank in the LIBOR submission process did not have a relevant impact on the rates level. Only through a synchronized "cartel-type" effort banks were allegedly able to fix the interest rate with a significant difference. For the case of USD LIBOR we developed a factorial modeling that captures the its relationship with US Treasury rates and Credit Default Swap spreads. Under this hypothesis we rebuilt a theoretical LIBOR that can peak 1% above the observed LIBOR during 2008.

Cost of the MTIC VAT fraud for European Union members

The Value Added Tax fraud is one of the most endemic economic crimes within the European Union. Its most disruptive form, the Missing Trader Intra-Coumunitary scam represents a real threat for the further economic and fiscal integration of the Union. The aim of this paper is to expose the mechanisms and to assess the magnitude of the MTIC fraud based on macroeconomic data. A macroeconomic model using panel regression is developed in order to link the amount of VAT collected across the member countries and their respective trade gaps. Using this model the outliers are identified based on the difference between the theoretical VAT and the observed amounts. The results emphasize that the MTIC fraud alone accounts for almost 68 Beuros in 2013 across the Union members (excluding Croatia) representing 0.5% of Union's GDP.


The Carbon Crooks

Tom Heinemann's documentary Carbon crooks presents to the large public how the carbon trading industry has been exposed to massive theft and fraud. According to Europol the fraud exceeds more than 5 billion euro. And Denmark was one of the centers for the massive fraud. One of the most intensive frauds was a V.A.T. caroussel where several European countries was exposed to a fraud hardly seen before. (IMDB page)
Schwarzthal's director, Marius Frunza participated with a long and comprehensive interview


Revue Banque Lutte contre le financement du terrorisme : l'économie de la terreur
Les actes et attaques terroristes s'appuient sur des réseaux économiques et financiers criminels impliqués dans des affaires frauduleuses comme la fraude à la Taxe sur la valeur ajoutée (TVA), le trafic d'armes, de stupéfiants ou de personnes.

ACFCS Daech and the Uberisation of terrorism: Low cost, high-profile attacks by decentralized group calls for new compliance paradigms
The logistics of the attacks may be financed by means that do not involve significant funds transfers, which would be easily detectable by the banking network.

Danish TV DR1 Economy of terror and VAT fraud
A documentary signed by the Danish channel DR1 about the funding of the terrorims in Europe.

Revue Banque ISIS and the "uber-terrorism"
Boston, Charlie Hebdo, Bataclan, Sharm ElCheik, San Bernardino, ... Facing an unprecedented wave of Islamist terrorism, modern society is confronted with a new public enemy who is both invisible and ubiquitous. But the Western society and especially Europe has experienced since the end of World War II several episodes of terrorism. The actions of the Red Brigades in Italy or those of the Irish Republican Army in Great Britain are still living memories in the collective unconscious.

Danish TV DR1 Economy of terror and VAT fraud

Le Nouvel Observateur Escroquerie à la taxe carbone : bras de fer judiciaire autour d'une lettre
During COP21 French newspaper reviews the trials of the Carbon Connection

The Telegraph Emission impossible as EU fails to police main anti-pollution scheme
British newspaper digging into the Carbon Connection

The Veox Emission difficult as EU fails to cops primary anti-pollution plan
Before COP21, skepticism plans, haunted by amemories of the Carbon Connection

Vanity Fair Cyril Astruc, Catch me if you can
In an unique documentary signed, Vanity Fair presents a rising star of the Carbon Connection

Foreign Policy The Hack That Warmed the World
A strategic view of the Carbon Connection . Europe's carbon-trading market was supposed to be capitalism's solution to global warming. Instead, it became a playground for gangsters, international crime syndicates, and even two-bit crooks -- who stole hundreds of millions of dollars in pollution credits.

Revue Banque Évaluer le coût de la non-Europe
L'objectif de cette étude est d'évaluer la robustesse d'une union économique et monétaire forte face à un nouveau scénario de crise. L'auteur a conçu un modèle statistique empirique qui intègre la relation entre les caractéristiques des marchés financiers, les indicateurs macroéconomiques et les données comptables des institutions financières dans les vingt-huit pays de l'Union européenne.

Revue Banque L'impact de Solvabilité 2 sur l'économie réelle
La mise en &oeliguvre de Solvabilité 2 conduit à une réallocation des portefeuilles des assureurs, marquée par une baisse des actions et des obligations du secteur privé, et à l'augmentation du poids des obligations d'État ou des titres obligataires tels que les covered bonds ou les collateralized loans. Mais cette réallocation peut aussi mener in fine à une diversification des activités et géographique des compagnies d'assurance, ainsi qu'à la consolidation du secteur. Est-ce, au final, bénéfique pour le financement de l'économie réelle ?