In this paper we investigate the interaction between a credit portfolio and another risk type, which can be thought of as market risk. Combining Merton-like factor models for credit risk with linear factor models for market risk, we analytically calculate their interrisk correlation and show how...

In this paper we define a new dynamic approach for measuring the Cash- Flow-at-Risk of a firm. Starting from the assumption that the balance sheet evolves according to a system of difference equations involving the most important accounting records, we define a new risk measure, tailored on our...

Risk parity is an asset allocation strategy designed so each asset class contributes equally to overall portfolio risk (as measured by volatility). While risk parity offers potential advantages, its success hinges on key assumptions and a favorable environment for bonds. Like the traditional...

There is a strand of CAPM based analytical research in accounting that uncovers a little known CAPM corollary, namely that the firm's cost of capital is a joint effect of its payoff risk and payoff mean. The CAPM equilibrium mechanism has the effect that the "numerator" (expected payoff) drives...

Stocks with high idiosyncratic volatility perform poorly relative to low idiosyncratic volatility stocks. We offer a novel explanation of this anomaly based on real options, which is consistent with earlier findings on idiosyncratic volatility (the positive contemporaneous relation between...

While discussing risk issues someone told me as a joke that she wished the world were riskless and the fact that risk were present in any instance in our lives was a rather unfortunate circumstance. But would we be really better off in a riskless world?Although it may appear to be a trivial...

If two investments have the same payoff covariance with the market but one has higher expected payoff, which asset according to the CAPM has most risk? One answer is that as far as risk goes the two assets are the same, because they have the same covariance with the market. The correct answer,...

An intensive and still growing body of research focuses on estimating a portfolio’s Value-at-Risk.Depending on both the degree of non-linearity of the instruments comprised in the portfolio and thewillingness to make restrictive assumptions on the underlying statistical distributions, a...

This paper investigates empirically whether uncertainty about volatility of the market portfolio can explain the performance of hedge funds both in the cross-section and over time. We measure uncertainty about volatility of the market portfolio via volatility of aggregate volatility (VOV) and...

A conditional asset pricing model with risk and uncertainty implies that the time-varying exposures of equity portfolios to the market and uncertainty factors carry positive risk premiums. The empirical results from the size, book-to-market, and industry portfolios as well as individual stocks...