This paper explores the role of diversification and size in protecting information. We present a simple two period credit market with a sophisticated lender faced with competitors who free ride on his screening activity. Absent commitment problems, the lender funds one borrower and exerts...

In the paper, we deal with the unexpected effects of new regulations and supervision and provide recommendations to ensure their effectiveness. New regulations essentially aim at strengthening the solvency and the liquidity of financial institutions. However, some technical aspects of these...

This study provides responses to the question of the effectiveness of Loan-To-Value (LTV) and Debt Service-To-Income (DSTI) caps to contribute to financial stability. Using a lender’s risk management perspective, the paper provides a new methodology extending the standard asymptotic single...

The paper describes the methods used by the French Banking Supervision Authority (ACP) to run stress tests for the corporate credit portfolio, through credit migration matrices (or transition matrices). This approach is currently used for “top-down” stress tests exercises. Developed for...

The paper describes the methods used by the French Banking Supervision Authority (ACP) to run stress tests for the corporate credit portfolio, through credit migration matrices (or transition matrices). This approach is currently used for “top-down” stress tests exercises. Developed for...

We propose a quadratic term-structure model of the EURIBOR-OIS spreads. Contrary to OIS, EURIBOR rates incorporate credit and liquidity risks resulting in compensations for (a) facing default risk of debtors, and (b) possible unexpected funding needs on the lender’s side. Our approach allows...

This paper presents a theoretical model of how banks set their credit standards. It examines how a monopoly bank sets its monitoring intensity in order to manage credit risk when it makes long duration loans to borrowers who have private knowledge of their project's stochastic profitability. In...

Arrow-Debreu state preference approach to derivatives pricing is embedded into decision theoretical framework. Derivatives prices are considered as decision variables. Axiomatic decision theory, concerned with the attitude toward uncertainty and existence of closed in *-weak topology sets of...

We measure the commonality in hedge fund returns, identify its main driving factor and analyze its implications for financial stability. We find that hedge funds’ commonality increased significantly from 2003 until 2006. We attribute this rise mainly to the increase in hedge funds’ exposure...

The aim of this paper is to build and estimate a macroeconomic model of credit risk for the French manufacturing sector. This model is based on Wilson's CreditPortfolioView model (1997a, 1997b); it enables us to simulate loss distributions for a credit portfolio for several macroeconomic...