Measuring value creation by comparing the RAROC of an exposure (the return on risk capital) with a single institution-wide hurdle rate is inconsistent with the standard theory of financial valuation. We use asset pricing theory to determine the appropriate hurdle rate for such a RAROC...

In the Capital Asset Pricing Model (CAPM) the β-parameter is related to the risk level of an asset and takes on values ranging around 1. I argue that β is also a function of the monetary risks the asset is exposed to, hence monetary risk can be estimated from betas. On the other hand, if we...

We present a stochastic simulation model for estimating forward-looking corporate probability of default and loss given default. We formulate the model in a discrete time frame, apply capital-budgeting techniques to define the relationships that identify the default condition, and solve the...

We present an analytical framework for the forward-looking measurement of extreme market risk. In contrast to standard techniques relying on past return data, we propose to extract Value-at-Risk and Expected Shortfall under the physical measure from current option prices. Our empirical evidence...

The aim of this work is to introduce an innovative methodology for performing risk attribution within a multifactor risk framework. We applied this analysis to the assessment of systemic, climate, and geopolitical risks relative to a representative sample of Eurozone banks between 2011 and 2022....

The paper is organized in six chapters. For all interested readers chapter two contains a detailed explanation of the ABRM technique with numerical illustrations. For academic researchers in particular, chapter three provides a detailed discussion of the research methodology. For the corporate...

This paper examines the effects of liquidity on the stock and portfolio risk measure by Value at Risk (VaR). Using daily stock returns and firm market capitalization, empirical calculation of VaR that confirmed not yet succeeded to prove pattern of relations between risk and liquidity both...

Using asset prices I estimate the marginal value of capital in a dynamic stochastic economy under general assumptions about technology and preferences. The state-space measure of marginal q relies on the joint measurability of the value function, i.e. firm market value, and its underlying firm...

Value-at-Risk bounds for aggregated risks have been derived in the literature in settings where besides the marginal distributions of the individual risk factors one-sided bounds for the joint distribution respectively the copula of the risks are available. In applications it turns out that...

Let us suppose that presently unimagined is possible, that “the unexpected may happen” (Marshall, 1920, p. 347). Then “human decisions affecting the future, whether personal, political or economic, cannot depend on strict mathematical expectation since the basis for making such...