This paper presents the Conditional Probability of Default (CoPoD) methodology for modelling the probabilites of loan defaults (PoD) by small and medium enterprises (SMEs) and unlisted firms as functions of identifiable macroeconomic and financial variables. The process of modelling PoDs...

The estimation of the profit and loss distribution of a loan portfolio requires the modelling of the portfolio's multivariate distribution. This describes the joint likelihood of changes in the credit-risk quality of the loans that make-up the portfolio. A significant problem for portfolio...

The recent crisis underlined that proper estimation of distress-dependence amongst banks in a global system is essential for financial stability assessment. We present a set of banking stability measures embedding banks’ linear (correlation) and nonlinear distress-dependence, and their changes...

Over the last two decades, macroeconomic cycles were frequently associated with boom--bust cycles in bank lending and asset prices, often followed by financial instability. In this paper we argue that (i) the new pattern of macroeconomic cycles is partly the result of banking-sector...

At what level should inflation be a concern? From a growth perspective, high and rising levels of inflation as in 2006–2008 raise concerns that inflation, if uncontained, could undermine growth. On the other hand, higher levels of inflation could create more space for using monetary policy to...

We study optimal oil extraction strategy and the value of an oil field using a multiple real option appraoch. Extracting a barrel of oil is similar to exercising a call option and optimal strategies lead to deferring production when oil prices are low and when volatility is high. We sow that, in...

This paper documents the expanding economic linkages between low-income countries (LICs) and a narrow group of “Emerging Market leaders” that have become major players in inter- national trade and financial flows. VAR models show that these linkages have increased the share of growth...

We show, in an exchange economy with default, liquidity constraints and no aggregate uncertainty, that state prices in a complete markets general equilibrium are a function of the supply of liquidity by the Central Bank. Our model is derived along the lines of Dubey and Geanakoplos (1992)....