[Update: Within four weeks of the original publication of this research report, Risk Magazine reported in its 28th February 2012 issue story titled 'Goodbye VaR? Basel to Consider Other Risk Metrics': "A review of trading book capital rules, due to be launched in March by the Basel Committee on...

Recent periods of market turbulence and stress have created considerable interest in credible alternatives to traditional asset allocation methodologies. It would be preferred if portfolios can be decomposed into components that can be directly connected to independent risks and individually...

For decades, the academic literature has focused on three survey measures of expected inflation: the Livingston Survey, the Survey of Professional Forecasters, and the Michigan Survey. While these measures have been useful in developing models of forecasting inflation, the data are low frequency...

Much of the trading activity in Equity markets is directed to brokerage houses. In exchange they provide so-called quot;soft dollarsquot; which basically are amounts spent in quot;researchquot; for identifying profitable trading opportunities. Soft dollars represent about USD 1 out of every USD...

We build a simple diagnostic criterion for approximate factor structure in large panel datasets. Given observable factors, the criterion checks whether the errors are weakly cross-sectionally correlated or share at least one unobservable common factor (interactive effects). A general version...

This paper quantifies how variation in real economic activity and inflation in the U.S. influenced the market prices of level, slope, and curvature risks in U.S. Treasury markets. We develop a novel arbitrage-free dynamic term structure model in which bond investment decisions are influenced by...

In this paper we analyze the limiting properties of the estimated parameters in a general class of asymmetric volatility models which are closely related to the traditional exponential GARCH model. The new representation has three main advantages over the traditional EGARCH: (1) It allows a much...

This chapter surveys recent econometric methodologies for inference in large dimensional conditional factor models in finance. Changes in the business cycle and asset characteristics induce time variation in factor loadings and risk premia to be accounted for. The growing trend in the use of...

The problem of determining the probability model (distribution) that generates observed data commonly arises in econometrics, decision making under ambiguity, robust control, and allied fields. We develop novel procedures that use the Hellinger distance to distinguish distributions based on...