Bank regulation is supposed to reduce the probability of bank failure and, if a failure occurs, to contain the damage so that system-wide problems are unlikely. The current regulatory framework, known as Basel II, is based, among other things, on risk-adjusted capital requirements. This...

It has been shown in the literature that the task of estimating the parameters of nonlinear models may be tackled with optimization heuristics. Thus, we attempt to carry these intuitions over to the estimation procedure of smooth transition autoregressive (STAR, Teräsvirta, 1994) models by...

Empirical distributions are often claimed to be superior to parametric distributions, yet to also increase the computational complexity and are therefore hard to apply in portfolio optimization. In this paper, we approach the portfolio optimization problem under constraints on the portfolio’s...

Non-linear modeling approaches, including Smooth Transition Autoregressive (STAR) models, have attracted a great deal of attention over the last two decades. The empirical application of these models, however, is not always a straightforward task. In particular, parameter estimation and...

The great financial turmoil that started 2007 has brought bank regulation back into the political debate. There is talk about imposing new regulations on banks and other financial intermediaries. Yet, we are not convinced that it is completely understood how the existing regulation affects...

This paper investigates the time-varying corporate bond index returns in a multi-factor smooth transition regression model. We find that expected index returns vary between weak and strong economic regimes, where the transition from one regime to the other is governed by the 3-quartered growth...