Banking regulations set minimum levels of capital for banks. These requirements are generally formulated through a ratio of capital to risk-weighted assets. A risk-weighting scheme assigns a weight to each asset or category of assets and effectively functions as a linear constraint on a bank's...

We analyze covariance matrix estimation from the perspective of market risk management, where the goal is to obtain accurate estimates of portfolio risk across essentially all portfolios—even those with small standard deviations. We propose a simple but effective visualization tool to assess...

Regulatory changes are transforming the multi-trillion dollar swaps market from a network of bilateral contracts to one in which swaps are cleared through central counterparties (CCPs). The stability of the new framework depends on the resilience of CCPs. Margin requirements are a CCP's first...

A credit valuation adjustment (CVA) is an adjustment applied to the value of a derivative contract or a portfolio of derivatives to account for counterparty credit risk. Measuring CVA requires combining models of market and credit risk to estimate a counterparty's risk of default together with...