In a traditional fixed rate mortgage, the borrower pays a fixed amount each period regardless of the value of the mortgaged property. One problem with this contract is that the borrower is less willing to pay when the house value falls. This was clearly seen in the 2008 financial crisis and its...

This paper proposes a framework for measuring and managing systemic risk. Current solvency regulations have been criticized for their focus on individual firms rather than the system as a whole. We show how an insurance program can be designed to deal with systemic risk through a risk charge on...

Recent literature has investigated the risk aggregation of a portfolio X=(Xi) under the sole assumption that the marginal distributions of the risks Xi are specified but not their dependence structure. There exists a range of possible values for any risk measure of S=X1 X2 ... Xn and the...

In this paper, we assess the magnitude of model uncertainty of credit risk portfolio models, i.e., what is the maximum and minimum Value-at-Risk (VaR) of a portfolio of risky loans that can be justi ed given a certain amount of available information. Puccetti and Ruschendorf (2012a) and...

We derive the optimal portfolio for an expected utility maximizer whose utility does not only depend on terminal wealth but also on some random benchmark (state-dependent utility). We then apply this result to obtain the optimal portfolio of a loss-averse investor with a random reference point...