We propose a new method for analysing multi-period stress scenarios for portfolio credit risk more systematically than in current macro stress tests. The plausibility of a scenario is quantified by its distance from an average scenario. For a given level of plausibility, we search systematically...

We propose a double auction mechanism for the exchange of leveraged assets and bonds in an agent based model. In this framework we validate recent results in general equilibrium theory about endogenous leverage and its consequences for asset pricing. We find that the institutional details of...

We conduct an extensive empirical analysis of VIX derivative valuation models before, during and after the 2008-2009 financial crisis. Since the restrictive mean reversion and heteroskedasticity features of existing models yield large distortions during the crisis, we propose generalisations...

This paper reviews recent advances made in improving the robustness of stress-testing models against potential misspecification or risk-factor-distribution misestimation, including conceptual advances in measuring robustness against pricing-model misspecification. In addition, we address an...

We study the trading of real assets financed by collateralized loans in an agent based model of a continuous double auction. This approach provides a complementary perspective on recent advances in the general equilibrium theory of endogenous leverage by studying a model that simultaneously...

We give a precise operational definition to three requirements the Basel Committee on Banking Supervision specifies for stress tests: Plausibility and severity of stress scenarios as well as suggestiveness of risk reducing actions. The basic idea of our approach is to define a suitable region of...

We study the trading of real assets financed by collateralized loans in an agent based model of a continuous double auction. This approach provides a complementary perspective on recent advances in the general equilibrium theory of endogenous leverage by studying a model that simultaneously...

We criticize the popular view that separately calculating regulatory capital for market and credit risk yields a conservative aggregate risk assessment. We show that this view depends on a flawed intuition about diversification effects that arise between subportfolios. If a bank’s portfolio...