In this study, we examine whether changes in the investment opportunityset stemming from interest rate and credit risks are priced in the US, theUK and the Swiss equity premia by estimating both two-factor and three-factor versions of Merton’s ICAPM. The systematic pricing of credit riskis...

This paper examines latent risk factors in models for migration risk. We employ thestandard statistical framework for ordered categorical variables and induce dependencebetween migrations by means of latent risk factors. By assuming a Markov process forthe dynamics of the latent factors, the...

Sustainable debt has become a key issue in rating of private as well as sovereign debtors. The problem of how to estimate sustainable debt has also been at the center of debate over theAsian 1997-1998 financial crisis. If the external value of the currency depends on the external debt of a...

The paper examines a class of random dynamical systems related to the classical von Neumann and Gale models of economic dynamics. Such systems are defined in terms of multivalued operators in spaces of random vectors, possessing certain properties of convexity and homogeneity. We establish a...

This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...

Control problems with Recursive Multiple-Priors Utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with Locally-Constrained-Entropy RMPU (LCE-RMPU) that is tractable even in...

In June 2003 Swiss banks held over CHF 500 billion in mortgages. This important segment accounts for about 63% of all loan portfolios of Swiss banks. Since default insurance is not common in Switzerland, the corresponding risks are a severe threat for the health of the financial system. We...

In single-obligor default risk modelling, using a background filtration in conjunction with a suitable embedding hypothesis (generally known as H-hypothesis or immersion property) has proven a very successful tool to separate the actual default event from the model for the default arrival...

The aim of this study is to develop a general equilibrium framework linking real estate prices to the real economy. The model is evaluated in terms of its ability to explain: (i) the high volatility of residential real estate prices, (ii) the fact that commercial real estate prices are more...