Testing calibration quality by means of backtesting is an integral part in the validation of credit rating systems. Against this background this paper provides a comprehensive overview of existing testing procedures. We study the procedures' deficiencies theoretically and illustrate their impact...

Aumann and Serrano (2008) introduce the index of riskiness to quantify the risk of a gamble. We discuss for which gambles this index of riskiness exists by considering the acceptance behavior of CARA-agents. Since for several relevant distributions riskiness is not defined, we suggest an...

Decisions involving risk depend on two distinct aspects: (i) the risk of the gamble and (ii) the attitude towards risk of the investor. The literature captures the first aspect by risk measures and the second by risk aversion. We connect both concepts by introducing the class of risk measures...

Pricing and hedging of long-term interest rate sensitive products require to extrapolate the term structure beyond observable maturities. For the resulting limiting term structure we show two Dybvig-Ingersoll-Ross results: under no arbitrage long zero-bond yields and long forward rates (i) are...

Aumann and Serrano (2008) introduce the index of riskiness to quantify the risk of a gamble. We discuss for which gambles this index of riskiness exists by considering the acceptance behavior of CARA-agents. Since for several relevant distributions riskiness is not defined, we suggest an...

Pricing and hedging of long-term interest rate sensitive products require to extrapolate the term structure beyond observable maturities. For the resulting limiting term structure we show two results by postulating no arbitrage in a bond market with infinitely increasing maturities: long...

Aumann and Serrano (J Political Econ 116(5):810–836, <CitationRef CitationID="CR3">2008</CitationRef>) introduce the axiom of duality, which ensures that risk measures respect comparative risk aversion. This paper characterizes all dual risk measures by a simple equivalent condition. This equivalence provides a decomposition result and...</citationref>

Credit risk has become an important factor driving government bond returns. We therefore introduce an asset pricing model which exploits information contained in both forward interest rates and forward CDS spreads. Our empirical analysis covers euro-zone countries with German government bonds as...