In this paper we develop a model of the economic value of a credit rating system. Increasing international competition and changes in the regulatory framework driven by the Basel Committee on Banking Supervision (Basel II) called forth incentives for banks to improve their credit rating systems....

In this paper we examine the influence of the granularity of a rating system on the resulting regulatory capital requirements with respect to the framework released by the Basel Committee on Banking Supervision (Basel II). We define granularity as the number of cohorts or rating classes used to...

Readily available information about the current term structure of interest rates, its level and recent trends in important countries has become a standard tool of monetary policy analysis. Interest rate curves can be used for inflation and output forecasts, they may give useful indications about...

Readily available information about the current term structure of interest rates, its level and recent trends in important countries has become a standard tool of monetary policy analysis. Interest rate curves can be used for inflation and output forecasts, they may give useful indications about...

Readily available information about the current term structure of interest rates, its level and recent trends in important countries has become a standard tool of monetary policy analysis. Interest rate curves can be used for inflation and output forecasts, they may give useful indications about...

We compare two popular scenario tree generation methods in the context of financial optimization: Moment matching and scenario reduction. Using a simple problem with a known analytic solution, we find that moment matching, when accompanied by a check to ensure the absence of arbitrage...

Ledermann et al. (2011) propose random orthogonal matrix (ROM) simulation for generating multivariate samples matching means and covariances exactly. Its computational efficiency compared to standard Monte Carlo methods makes it an interesting alternative. In this paper we enhance this method's...

This paper focuses on the dynamics of yield spreads deducted from government bonds issued by member states of the European Monetary Union (EMU). A descriptive analysis shows that there is a substantial and volatile spread between government zero coupon yields of EMU member countries and German...

This paper focuses on the joint dynamics of yield spreads derived from government bonds issued by member states of the European Monetary Union (EMU). A descriptive analysis shows that there are substantial and volatile spreads between zero coupon yields of EMU member countries and German Bund...

Many numerical optimization methods use scenario trees as a discrete approximation for the true (multi-dimensional) probability distributions of the problem's random variables. Realistic specifications in asset-liability management (ALM) models can lead to tree sizes that quickly become...