Order flow has been found to carry information to the market. When assessing how informative order flow is, the VAR methodology is typically employed, using impulse response functions. However, in such analyses, the direction of causality runs explicitly from order flow to asset return. If data...

We develop a coordination game to model interactions between fundamentals and liquidity during unstable periods in financial markets. We then propose a flexible econometric framework for estimation of the model and analysis of its quantitative implications. The specific empirical application is...

We characterize the investor’s optimal portfolio allocation subject to a budget constraint and a probabilistic VaR constraint in complete markets environments with a finite number of states. The set of feasible portfolios might no longer be connected or convex, while the number of local optima...

This is documentation for a C++ implementation of the simulated maximum likelihood (SML) estimation method, where the SML algorithm is applied to the stochastic volatility (SV) model. The algorithm and code can easily be adapted to a richer class of SV models, as well as to more general dynamic...

The quality of statistical risk models is much lower than often assumed. Such models are useful for measuring the risk of frequent small events, such as in internal risk management, but not for systemically important events. Unfortunately, it is common to see unrealistic demands placed on risk...

Economic problems such as large claims analysis in insurance and value-at-risk in finance, require assessment of the probability P of extreme realizations Q. This paper provided a semi-parametric method for estimation of extreme (P, Q) combinations for data with heavy tails. We solve the long...

Accurate prediction of the frequency of extreme events is of primary importance in many financial applications such as Value-at-Risk (VaR) analysis. We propose a semi-parametric method for VaR evaluation. The largest risks are modelled parametrically, while smaller risks are captured by the non-...

Under the new Capital Accord, banks choose between two different types of risk management systems, the standard or the internal rating based approach. The paper considers how a bank's preference for a risk management system is affected by the presence of supervision by bank regulators. The model...