The goal of this paper is to explore the model risk inherent in the rating and design of structured finance products. We seek to illustrate the consequences of neglecting state-dependent correlations on the methodologies and criteria employed by the major ratings agencies. In contrast to related...

We analyze optimal hedging contracts and show that although hedging aims at sharing risk, it can lead to more risk-taking. News implying that a hedge is likely to be loss-making undermines the risk-prevention incentives of the protection seller. This incentive problem limits the capacity to...

In this paper, we study the problem of potential premium losses when the premiums of guarantees of long maturities are collected periodically throughout the duration of the guarantee. Using a ratings based approach, we show how to price the risk of future premium losses and we assess the size of...