We present a stochastic simulation forecasting model for stress testing that is aimed at assessing banks' capital adequacy, financial fragility, and probability of default. The paper provides a theoretical presentation of the methodology and the essential features of the forecasting model on...

The recent evolution of prudential regulation establishes a new requirement for banks and supervisors to perform reverse stress test exercises in their risk assessment processes, aimed at detecting default or near-default scenarios. We propose a reverse stress test methodology based on a...

This paper introduces an estimation procedure for a random effects probit model in presence of heteroskedasticity and a likelihood ratio test for homoskedasticity. The cases where the heteroskedasticity is due to individual effects or idiosyncratic errors or both are analyzed. Monte Carlo...

We develop a modified exploration–exploitation algorithm which allocates a fixed resource (e.g., a fixed budget) to several units with the objective to attain maximum sales. This algorithm does not require knowledge of the form and the parameters of sales response functions and is able to cope...

This paper replicates the estimates of a fractional response model for share data reported in the seminal paper of Leslie E. Papke and Jeffrey M. Wooldridge published in the Journal of Applied Econometrics 11(6), 1996, pp.619-632. We have been able to replicate all of the reported estimation...

Exchange-traded funds (ETFs) exist for stock, bond and commodity markets. In most cases the underlying feature of an ETF is an index. Fund management today uses the active and the passive way to construct a portfolio. ETFs can be used for passive portfolio management, for which ETFs with...