The incremental risk charge (IRC) is a new regulatory requirement from the Basel Committee in response to the recent financial crisis. Notably few models for IRC have been developed in the literature. This paper proposes a methodology consisting of two Monte Carlo simulations. The first Monte...

Managing risk is one of the main activities of venture capital companies. Despite the fact that this topic is of high practical relevance, only little research was published on risk management performed by venture capital companies in their ventures. Hence, we conducted a structured literature...

Venture capital (VC) funds are supplied by a wide range of individual and institutional investors with varied risk profile. The funds vary in size and given funds life VC fund managers thus face two tiers of issues with liquidity and risk management. First the fund managers could face a set of...

We consider the general class of spectrally positive Lévy risk processes, which are appropriate for businesses with continuous expenses and lump sum gains whose timing and sizes are stochastic. Motivated by the fact that dividends are paid periodically in real life, we study periodic dividend...

The regulatory use of banks' internal models makes capital requirements more risk-sensitive but invites regulatory arbitrage. I develop a framework to study bank regulation with strategic selection of risk models. A bank supervisor can discourage arbitrage by auditing risk models, and implements...

I study optimal financial contracting when neither cash flows nor the risk profile of project choices are verifiable. Using a contracting framework, I show the resulting two frictions (cash-diversion and asset-substitution) are intricately linked: to address the cash-diversion problem, an...

We analyze the role of risk limits in the provision of incentives to acquire valuable information for efficient risk management. We study the optimal contract of a trader who (a) must privately exert costly effort in order to collect information and (b) may have access to a costly second opinion...

The venture industry relies extensively on convertible contracts that allow VCs to convert their investments into an equity stake or a fixed debt position at a future date. We study convertible venture investments exposed to failure risk and valuation uncertainty using a double-hazard framework...

Managerial incentives are skewed in non-listed funds under finite horizons. Compensation structures are only indirectly related to shareholder wealth maximization when share prices are unobservable. Liquidity options for investors are limited in the absence of an exchange listing. Using a...

For alternative assets such as venture capital, buyouts (private equity), real estate, etc., the standard regression of portfolio returns on market returns to measure risk produces risk measures that are not credible. Institutional investors, doubting such measures, instead often use either some...