Banks often measure credit and interest rate risk in the banking book separately and then add the risk measures to determine economic capital. This approach misses complex interactions between the two risk types. We develop a framework where these risks are analysed jointly. Since banking book...

This paper considers a standard present-value equity price formula where the discount factor is driven by the real return on short-term public debt. We discuss a state-space formulation by which prices can be decomposed into fundamental and non-fundamental components. The model is estimated on...