This paper uses a highly disaggregated demand system to estimate the degree of substitutability among monetary assets and to address the issue of optimal monetary aggregation in the United States. We address the problems of dimensionality and nonlinearity, estimating a very detailed monetary...

Covered bonds are a specific example of senior secured debt. If the issuer of the bonds defaults the proceeds of the assets in the cover pool are used for their debt service. If in this situation the cover pool proceeds do not suffice for the debt service, the creditors of the bonds have...

This paper uses an exclusive proprietary data set of European Credit Derivatives and VIX markets, covering a sample of 5 to 7 years, to study the nature of the link between credit risk and market risk, widely acknowledged in the academic literature. This allows us to establish cointegration in...

The situation of a limited availability of historical data is frequently encountered in portfolio risk estimation, especially in credit risk estimation. This makes it, for example, difficult to find temporal structures with statistical significance in the data on the single asset level. By...

[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...

We customize factor attribution for quantitative equity portfolios to better align the measurement of factor returns with how factor tilts were taken on. Specifically, we provide a theoretical argument for including the absolute value of factor exposures in the attribution to account for the...

Unemployment, firm Dynamics, and the Business CyclTime variation is a fundamental problem in statistical and econometric analysis of macroeconomic and financial data. Recently there has been considerable focus on developing econometric modelling that enables stochastic structural change in model...

In this paper we propose a maximum entropy estimator for the asymptotic distribution of the hedging error for options. Perfect replication of financial derivatives is not possible, due to market incompleteness and discrete-time hedging. We derive the asymptotic hedging error for options under a...

This study uses a comprehensive data set of VIX and CDS markets to propose pairs trading strategies that represent the dynamic relation between market risk and credit risk in an equilibrium framework with a common non stationary factor. This involves the analysis of price discovery between VIX...

The September 2008 collapse of Lehman Brothers was the 9/11 on Wall Street, and many articles had been written on the changes in the global risk landscape that followed. However, there is scarcity of rigorous studies using empirical data and advanced econometric methods to verify such a change...