Market liquidity is the ease of trading an asset. Its risk is the potential loss, because a security can only be traded at high or prohibitive costs. While the omnipresence and importance of market liquidity is widely acknowledged, it has long remained a more or less elusive concept. Treatment...

Market liquidity risk, the difficulty or cost of trading assets in crises, has been recognized as an important factor in risk management. Literature has already proposed several models to include liquidity risk in the standard Value-at-Risk framework. While theoretical comparisons between those...

It has been frequently discussed, that returns are not normally distributed. Liquidity costs, measuring market liquidity, are similarly non-normally distributed displaying fat tails and skewness. Liquidity risk models either ignore this fact or use the historical distribution to empirically...

The paper deals with the evaluation of Collateralized Debt Obligations forinvestment purposes. CDOs are classified in the asset backed environment. Itsspecific risks (market, timing, recovery, agency) are discussed. To understand theportfolio aspect, the concept of the diversity score is...

We investigate the problem of modeling defaults of dependent credits.In the framework of the class of structural default models we studythreshold models where for each credit the underling ability-to-payprocess is a transformation of a Wiener processes. We propose a modelfor dependent defaults...

Assessments of investors’ risk appetite/aversion stance via indicators often yields resultswhich seem unsatisfactory (see e.g. Illing and Aaron (2005)). Understanding howsuch indicators work therefore seems essential for further improvements. The presentpaper seeks to contribute to this...

We study the risk of holding credit default swaps (CDS) in the trading book. In particular, wecompare the Value at Risk (VaR) of a CDS position to the VaR for investing in the respectivefirm’s equity. Our sample consists of CDS – stock price pairs for 86 actively traded firms overthe period...

This is study empirically examine the impact of market conditions on credit spreads asmotivated by recently developed structural credit risk models. Using credit default swap(CDS) spreads, we find that, in the time series, average credit spreads are decreasing inGDP growth rate, but increasing...

Interest income is the most important source of revenue for most of thebanks. The aim of this paper is to assess the impact of different interest ratescenarios on the banks' interest income. As we do not know the interest ratesensitivity of real banks, we construct for each bank a portfolio with...