In this, the third paper in the Economists’ Hubris series, we highlight the shortcomings of academic thought in developing models that can be used by financial institutions to institute effective enterprise-wide risk management systems and policies. We find that pretty much all of the models...

This paper examines the securitization of financial products that have both assets and liabilities, and that are affected by longevity risk. The longevity risk is what determines the magnitude of the assets and that of the liabilities embedded in the financial product to be securitized. Examples...

Skandia, a 145 year-old company that’s transformed itself from a regional insurance company into a global financial services company in the last 15 years, presents an interesting case study of why increasing transparency into intangible asset management and value-creation leads to better long...

During the past decade or so, financial institutions have been facing some of the most challenging times in their history. The world has become a much more open place, with competition coming from many sources that were of no great significance previously. Information is available freely and...

Events such as the recent global financial crisis, the failure of Lehman Brothers, and the bailout of American International Group, have called increased attention to the opaque workings of the over-the-counter (OTC) derivatives markets which have remained unregulated until now. Nevertheless,...

In this paper, we investigate whether the international version of CAPM can price rational and irrational sentiments of U.S. individual and institutional investor sentiments. The results show that the CAPM prices rational sentiments driven by fundamentals and irrational sentiments not driven by...

We propose an alternative to the conventional risk finance paradigm of enterprise risk management that accounts for not only a loss portfolio’s expected frequency and expected severity, but also its “risk” as captured by an appropriate measure of dispersion/spread. This new paradigm is...

CoCos are contingently convertible debt securities. They are an infant reform instrument that grew out of the 2007-09 crisis. As hybrid capital, they convert to common equity tier 1 (CET1) outside bankruptcy when a built-in trigger level of the regulatory capital ratio with risk-weighted assets...

The complex dynamics of world financial markets yield inherent uncertainty and the prospect of periods of enhanced volatility. The turbulent global economic and regulatory environment of the past few years has certainly illustrated this reality. As investment managers interpret clients’...

This paper reports an investigation into measures of portfolio performance. The Sharpe ratio is the natural performance measure when asset returns come from any elliptically symmetric distribution, regardless of the investor utility function and subject only to regularity conditions. Under such...