Starting from the Merton framework for firm defaults, we provide theanalytics and robustness of the relationship between defaultprobabilities and default correlations. We show that loans with higherdefault probabilities will not only have higher variances but also highercorrelations with other...

Starting from the Merton framework for firm defaults, we provide the analytics and robustness of the relationship between default correlations. We show that loans with higher default probabilities will not only have higher variances but also higher correlations between loans. As a consequence,...

Starting from the Merton framework for firm defaults, we provide the analytics and robustness of the relationship between default correlations. We show that loans with higher default probabilities will not only have higher variances but also higher correlations between loans. As a consequence,...

Starting from the Merton framework for firm defaults, we provide the analytics and robustness of the relationship between default correlations. We show that loans with higher default probabilities will not only have higher variances but also higher correlations between loans. As a consequence,...

Starting from the Merton framework for firm defaults we provide the analytics and robustness of the relationship between default probabilities and default correlations. We then derive the implication of these results for the impact of macroeconomic shocks on credit portfolios, for the pricing of...

In this paper, we present a new way to deal with initiatives, i.e. proposals that can be submitted to voting by the citizens of a democracy. We call it “Assessment Voting”. It takes place in two rounds. Before the conclusive voting, a given number of randomly-chosen voters casts its votes....

In this paper, we present a new way to deal with initiatives, i.e. proposals that can be submitted to voting by the citizens of a democracy. We call it “Assessment Voting”. It takes place in two rounds. Before the conclusive voting, a given number of randomly-chosen voters casts its votes....

The internal ratings based approach (IRB) of the Basel Committee has three problems: few incentives for banks to adopt the IRB approach, a complicated technical framework and very conservative aggregation rules. We suggest the following remedies: First, we suggest a new design of transition...

Politicians tend to push the amount of public debt beyond socially desirable levels in order to increase their reelection chances. We develop a model that provides a new explanation for this behavior: office holders undertake debt-financed public projects, but postpone the timing of part of the...

We examine the effects of a novel political institution, which we call Coalition- Preclusion Contracts, on elections, policies, and welfare. Coalition-Preclusion Contracts enable political parties to credibly commit before the elections not to form a coalition after the elections with one or...