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

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...

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...

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...

Natural catastrophes attract regularly the attention of media and have become a source of public concern. From a financial viewpoint, natural catastrophes represent idiosyncratic risks, diversifiable at the world level. But for reasons analyzed in this paper reinsurance markets are unable to...

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...

Large systematic risks, such as those arising from natural catastrophes, climatic changes and uncertain trends in longevity increases, have risen in prominence at a societal level and, more particularly, have become a highly relevant issue for the insurance industry. Against this background, the...