Recent literature has trumpeted the claim that extreme value theory (EVT) holds promise for accurate estimation of extreme quantiles and tail probabilities of financial asset returns, and hence hold promise for advances in the management of extreme financial risks. Our view, based on a...

Despite overwhelming evidence to the contrary, credit migration matrices, used in many credit risk and pricing applications, are typically assumed to be generated by a simple Markov process. In this paper we propose a parsimonious model that is a mixture of (two) Markov chains. We estimate this...

Market risk management traditionally has focussed on the distribution of portfolio value changes resulting from moves in the midpoint of bid and ask prices. Hence the market risk is really in a quot;purequot; form: risk in an idealized market with no quot;frictionquot; in obtaining the fair...