Characterizing asset return dynamics using volatility models is an important part of empirical finance. The existing literature on GARCH models favors some rather complex volatility specifications whose relative performance is usually assessed through their likelihood based on a time series of...

This paper investigates a two-factor affine model for the credit spreads on corporate bonds. The first factor can be interpreted as the level of the spread and the second factor is the volatility of the spread. The riskless interest rate is modeled using a standard two-factor affine model, thus...

We present new evidence on disaggregated profit and loss (P/L) and value-at-risk (VaR) forecasts obtained from a large international commercial bank. Our data set includes the actual daily P/L generated by four separate business lines within the bank. All four business lines are involved in...