This paper shows how financial contracts might be redesigned to allow for banks to manage the idiosyncratic component for their own accounts.

We consider a pool of bank loans subject to a credit risk and develop a method for decomposing the credit risk into idiosyncratic and systemic components. The systemic component accounts for the aggregate statistical difference between credit defaults in a given period and the long-run average...

Credit risk is pervasive throughout financial markets. Traditionally, various financial institutions have assumed the burden of credit risk. Banks have supported the credit risk attached to bank loans and forward contracts. Credit insurance companies have provided coverage for the commercial...

Although risk aversion has been used in economic models for over 275 years, the past few decades have shown how higher order risk attitudes are also quite important. A behavioral approach to defining such risk attitudes was developed by Eeckhoudt and Schlesinger (2006), based upon simple lottery...

In the standard model for insurance demand, the risk is totally exogenous and the insurance premium is paid for out of riskless wealth. This model yields results that are mostly in contradiction to everyday observation and have been used to question the pertinence of expected utility theory on...

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This article combines a portfolio model and the APT to determine common factors explaining the bias observed ex post between the forward exchange rate and the future spot rate of the same currency. The model allows us to decompose the forward exchange bias into four risk premiums connected to...

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