Structured products like collateralized loan obligations (CLOs) tend to offer significantly higher yield spreads than corporate bonds with the same rating. At the same time, empirical evidence does not indicate that this higher yield is reduced by higher default losses of CLOs. The evidence thus...

Most credit portfolios contain obligor concentration risk and yet international bank regulatory capital rules and many industry models assume perfect diversification. Multiple methods are available to calculate the approximate capital needs of a concentrated credit portfolio, but many of these...

As stress testing becomes more and more widespread as a risk measurement tool of choice, new questions are formulated about its applications to portfolio management. One of the most important ones for fund managers is: ‘How do we analyze results of stress tests for benchmarked portfolios?' We...

In this paper, we apply the principle of Equal Risk Contribution (ERC) to a corporate bond index, an asset class so far left behind in this literature. Specifically, we rely on the Duration Times Spread (DTS) and demonstrate that it is a coherent metric for bond risk. We construct indexes based...

This paper examines the international credit portfolios of German banks. We construct a bank-country panel from a unique dataset for a representative set of countries and ask why banks leave diversification opportunities unexploited in some countries. Controlling for bank heterogeneity, we...

Lending specialization on certain industry sectors can have opposing effects on monitoring (including screening) abilities and on the sectoral concentration risk of a credit portfolio. In this paper, we examine in the first part if monitoring abilities of German cooperative banks and savings...

Instruments for credit risk transfer arise endogenously from and interact with optimizing behavior of their users. This is particularly true with credit derivatives which are usually OTC contracts between banks as buyers and sellers of credit risk. Recent literature, however, does not account...

The author's study analyzes, loan valuation methods using discrete time model of contingent claims analysis. In the empirical test, the undiversifiable risk was measured by the correlation coefficient of one borrower with the average return of all borrowers. The results of the test supported the...

Mutual fund risk-taking via active portfolio rebalancing varies both in the crosssection and over time. In this paper, I show that the same is true for funds' off- balance sheet risk-taking, even after controlling for on-balance sheet activities. For this purpose, I propose a novel measure of...