This paper examines the common factors that drive the returns of U.S. bank holding companies from 1997 to 2005. We compare a range of market models from a basic one-factor model to a nine-factor model that includes the standard Fama-French factors and additional factors thought to be...

This paper considers a simple model of credit risk and derives the limit distribution of losses under different assumptions regarding the structure of systematic and idiosyncratic risks and the nature of firm heterogeneity. The theoretical results obtained indicate that if firm-specific risk...

This paper considers a simple model of credit risk and derives the limit distribution of losses under different assumptions regarding the structure of systematic and idiosyncratic risks and the nature of firm heterogeneity. The theoretical results obtained indicate that if firm-specific risk...

While it is often argued that allocation decisions can be best expressed in terms of exposure to rewarded risk factors, as opposed to somewhat arbitrary asset class decompositions, the practical implications of this paradigm shift for the optimal design of the policy portfolio still remain...

Banks as financial intermediaries are broadly exposed to a wide range of economic and financial risk factors. We parse climate risk into its two main types: physical risk such as sea level rise and transition risk such as climate related policy changes (e.g., efficiency requirements or carbon...

Stress testing has become a tool of choice in banking for risk managers and regulators alike, and it is used more widely as a way to assess resilience to severely adverse events. Yet even the most creative risk manager would have been challenged to design a scenario that would have adequately...