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Economic problems such as large claims analysis in insurance and value-at-risk in finance, requireassessment of the probability P of extreme realizations Q. This paper provided a semi-parametricmethod for estimation of extreme (P, Q) combinations for data with heavy tails. We solve the...
Persistent link: https://www.econbiz.de/10010533207
Banks provide risky loans to firms which have superior information regarding the quality of their projects. Due to asymmetric information the banks face the risk of adverse selection. Credit Value-at-Risk (CVaR) regulation counters the problem of low quality, i.e. high risk, loans and therefore...
Persistent link: https://www.econbiz.de/10011334832
returns. The theory of regular variation and extreme values provides a model for this feature of financial data. We first … review this theory and subsequently study the problem of portfolio diversification in particular. We show that if the …
Persistent link: https://www.econbiz.de/10011317458
We characterize the investor’s optimal portfolio allocation subject to a budget constraint and a probabilistic VaR constraint in complete markets environments with a finite number of states. The set of feasible portfolios might no longer be connected or convex, while the number of local optima...
Persistent link: https://www.econbiz.de/10011317459
Under the new Capital Accord, banks choose between two different types of risk management systems, the standard or the internal rating based approach. The paper considers how a bank's preference for a risk management system is affected by the presence of supervision by bank regulators. The model...
Persistent link: https://www.econbiz.de/10011318589
The paper studies risk mitigation associated with capital regulation, in a context when banks may choose tail risk assets. We show that this undermines the traditional result that higher capital reduces excess risk-taking driven by limited liability. When capital raising is costly, poorly...
Persistent link: https://www.econbiz.de/10011383199
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Persistent link: https://www.econbiz.de/10001594653