Most portfolio risk analysis implicitly assumes that risks are stable, despite copious evidence of instability. This article presents an alternative, VarGamma, that provides neat formulas for certainty equivalents (risk-adjusted returns) even with stochastic volatility and volatility-dependent...

Since borrowers want minimal pressure to repay early while depositors want minimal constraints on withdrawals, banks typically borrow short to lend long. This is known as duration mismatch. To mitigate the risks, banks are required to hold capital buffers, which are intended to cover all losses...