Abstract: Denote the loss return on the equity of a financial institution as X and that of the entire market as Y . For a given very small value of p 0, the marginal expected shortfall (MES) is defined as E(X | Y QY (1−p)), where QY (1−p) is the (1−p)-th quantile of the distribution of Y...

Abstract: We extend classical extreme value theory to non-identically distributed observations. When the distribution tails are proportional much of extreme value statistics remains valid. The proportionality function for the tails can be estimated nonparametrically along with the (common)...

The payoffs of path-dependent options depend not only on the nal values, but also on the sample paths of the prices of the underlying assets. A rigorous modeling of the under-lying asset price processes which can appropriately describe the sample paths is therefore critical for pricing...

Since Black and Scholes (1973) and Merton (1974), structural models of credit risk have relied almost exclusively on diffusion processes to model the evolution of firm value. While a diffusion approach is convenient, in empirical application, it has produced very disappointing results. Jones,...

If stock prices do not follow random walks, what processes do they follow? This question is important not only for forecasting purposes, but also for theoretical analyses and derivative pricing where a tractable model of the movement of underlying stock prices is needed. Although several models...

This paper uses the term structure of interest rates to explain the variations of stock prices and stock returns. It shows that interest rates have an important impact on stock returns, especially at long horizons. The hypothesis that expected stock returns move one-for-one with ex ante interest...

Evaluating default correlations or the probabilities of default by more than one firm is an important task in credit analysis, derivatives pricing, and risk management. However, default correlations cannot be measured directly, multiple-default modeling is technically difficult, and most...