This paper develops an empirical procedure for analyzing the impact of model misspecification and calibration errors on measures of portfolio credit risk. When applied to large simulated portfolios with realistic characteristics, this procedure reveals that violations of key assumptions of the...

In this article we explore different hedging options for an XVA book: this topic is of practical interest given that accounting principles make it compulsory for financial institutions to account for CVA and DVA in their balance sheet, generating income volatility. Further, capital requirements...

We extend the Rothschild and Stiglitz (1970, 1971) notion of increasing risk to families of random variables and in this way link their approach to the concept of stochastic processes which are increasing in the convex order. These processes have been introduced in seminal work by Strassen...

Target volatility options (TVO) are a new class of derivatives whose payoff depends on some measure of volatility. These options allow investors to take a joint exposure to the evolution of the underlying asset, as well as to its realized volatility. For instance, a target volatility call can be...

We investigate risk averse agents who manage risk by trading financial securities in a market that we call a risk market. We assume this market is perfectly competitive and complete. When risk aversion is expressed using risk measures, the (bundle of) prices for financial securities turns out to...