"Arbitrage CDOs" have recorded an explosive growth during the years before the outbreak of the financial crisis. In the present paper we discuss potential sources of such arbitrage opportunities, in particular arbitrage gains due to mispricing. For this purpose we examine the risk profiles of...

The Basel Committee proposes to supplement the current value-at-risk (VaR) regulatory capital framework for trading exposures with an incremental risk capital charge (IRC). Since the financial market crisis that began in mid-2007, a number of major banking organisations have experienced large...