Assuming a risk-neutral bank and assuming household utility to be exponential, we show how under information symmetry …

ante uncertainty about the borrower's performance - the risk that the borrower will default on the loan - in the contract … with covenants featuring the financial measure most informative of borrower debt value and default risk. The results … suggest that financial covenants limit the risk of making loans to borrowers with uncertain future performance …

We introduce a class of quantile-based risk measures that generalize Value at Risk (VaR) and, likewise Expected … probability of occurrence. The corresponding risk measure, called Loss VaR (LVaR), determines the minimal capital injection that … and applications to capital adequacy, portfolio risk management and catastrophic risk are presented …

disclosure choices. CDSs enable lenders to hedge their credit risk exposure, weakening their incentives to monitor borrowers. We … disclosure when (1) lenders have higher ability and propensity to hedge credit risk using CDSs, and (2) lender monitoring …

dynamic relation between market risk and credit risk in an equilibrium framework with a common non stationary factor. This … market risk and credit risk and predominant price leadership in the VIX market. CDS spreads can thus be replicated through … risk by building a pairs arbitrage strategy whose profits are driven by the common price discovery factor. The respective …

5 to 7 years, to study the nature of the link between credit risk and market risk, widely acknowledged in the academic …

The calculation of the capital charge for CVA risk, as required by the Basel Committee on Banking Supervision, is … CDSs and CDS indices, and we also evaluate the level of basis risk still remaining under the hedge. We address several … questions: Is there enough diversification of risk in a global credit portfolio to allow for a good hedge? Is basis risk higher …

out some key issues on how the credit risk associated to these products can be reduced and, finally, in the last section …

Through the lens of market participants' objective to minimize counterparty risk, we provide an explanation for the … of the benefits and potential pitfalls with respect to a single market participant's counterparty risk exposure when … elements can render central clearing harmful for a market participant's counterparty risk exposure regardless of the number of …

The incremental risk charge (IRC) is a new regulatory requirement from the Basel Committee in response to the recent … generated. The second Monte Carlo simulation is the random draws based on the constant level of risk assumption. It convolutes …