In the framework of the industrial economics approach to banking we extend the analysis of hedging against default on loans to the case of two types of credit risk. Standard results on the optimal hedge volume and the hedging effectivity from the single?risk case are shown to carry over to the...

The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large com- mercial bank. In a partial-analytic framework we distinguish between...

This paper examines the behavior of the regret-averse multinational firm under exchange rate uncertainty. The multinational firm simultaneously sells in the home market and exports to a foreign country. We characterize the multinational firm's regret-averse preferences by a modified utility...

We examine risk taking when the bank's preferences exhibit smooth ambiguity aversion. Ambiguity is modeled by a second-order probability distribution that captures the bank's uncertainty about which of the subjective beliefs govern the financial asset return risk. Ambiguity preferences are...