Equity and credit-default-swap (CDS) markets are in disagreement as to the extent to which asset returns co-move across firms. This suggests market segmentation and casts ambiguity about the asset-return correlations underpinning observed prices of portfolio credit risk. The ambiguity could be...

In order to analyze the pricing of portfolio credit risk - as revealed by tranche spreads of a popular credit default swap (CDS) index - we extract risk-neutral probabilities of default (PDs) and physical asset return correlations from single-name CDS spreads. The time profile and overall level...

This article compares the linkages between credit fundamentals, ratings and value-at-risk measures for CDO tranches with those for corporate bond exposures. A sensitivity analysis incorporating market information and rating migrations data reveals that the behaviour of CDO tranche ratings can...

A model-based assessment of credit risk is subject to both specification and calibration errors. Focusing on a well known credit risk model, we propose a methodology for quantifying the relative importance of alternative sources of such errors and apply this methodology to a large data set. We...

In this paper we propose a framework for measuring and stress testing the systemic risk for a group of major financial institutions. The systemic risk is measured by the price of insurance against financial distresses, which is based on ex ante measures of default probabilities of individual...

In this paper we propose a framework for measuring and stress testing the systemic risk for a group of major commercial banks and investment banks. The systemic risk is measured by the price of insurance against financial distresses, which is based on ex ante measures of default probabilities of...

The paper investigates the characteristics of house price dynamics and the role of institutional features in nine Asia-Pacific economies during 1993-2006. On average, house prices tend to be more volatile in markets with lower supply elasticity and a more flexible business environment. At the...

This paper develops a stochastic dynamic model to examine the impact of capital regulation on banks' financial decisions. In equilibrium, lending decisions, capital buffer and the probability of bank failure are endogenously determined. Compared to a flat-rate capital rule, a risk-sensitive...

This paper proposes that bank runs are unique equilibrium outcomes instead of self-fulfilling prophecies. By assuming that depositors make their withdrawal decisions sequentially, the model provides an equilibrium-selection mechanism in the economy. A bank run would occur if and only if...

This paper proposes a continuous-time framework that explains some stylised facts in recent quot;twin crisesquot; episodes. I show that access to the world capital market enables the domestic economy to achieve a more efficient allocation of resources. However, the banking sector becomes more...