Coherent risk measures have received considerable attention in the recent literature. Coherent regular risk measures form an important subclass: they are empirically identifiable, and, when combined with mean return, they are consistent with second order stochastic dominance. As a consequence,...

We empirically analyze the implementation of coherent risk measures in portfolio selection. First, we compare optimal portfolios obtained through mean-coherent risk optimization with corresponding mean-variance portfolios. We find that, even for a typical portfolio of equities, the outcomes can...

In this paper we propose a general framework for quantification of model risk. This framework allows us to allocate regulatory capital to positions in a given market depending on the extent to which this market can be reliably modeled. Our approach is based on computing worst-case risk measures...

In this paper we empirically compare a wide range of different term structure models when it comes to the pricing and, in particular, hedging of caps and swaptions. We analyze the influence of the number of factors on the hedging and pricing results, and investigate which type of data...

In this paper we empirically analyze the impact of transaction costs on the performance of affine interest rate models. We test the implied (no arbitrage) Euler restrictions, and we calculate the specification error bound of Hansen and Jagannathan to measure the extent to which a model is...

In this paper we test several risk management models for computing expected shortfall for one-period hedge errors of hedged derivatives positions. Contrary to value-at-risk, expected shortfall cannot be tested using the standard binomial test, since we need information of the distribution in the...

In this paper we model expenditure on housing for owners and renters by means of endogenous switching regression models using cross-section data. We explain the share of housing in total expenditure from family characteristics and total expenditure, where the latter is allowed to be endogenous....

In this paper we reconsider the pricing of options in incomplete continuous time markets. We first discuss option pricing with idiosyncratic stochastic volatility. This leads, of course, to an averaged Black-Scholes price formula. Our proof of this result uses a new formalization of idiosyncrasy...