Assumptions regarding long‐term expected returns have significant implications for asset/liability management of financial institutions. This article questions the validity of common assumptions regarding long‐term expected returns that are employed by financial institutions, in particular...

While interpreting violent market movements can potentially be illuminating, many experienced finance practitioners shy away from this exercise, having recognized the difficulty of this task. At the same time, the majority of them appears to have accepted the premise that supply‐and‐demand...

Today, most institutional investors, practitioners, and regulators seem relatively content with the current state of the art. Although most academics and practitioners fully recognize the conceptual and technological limitations of the “state‐of‐the‐practice” models, systems, and...

Value‐at‐Risk (VaR) has become a mainstream risk management technique employed by a large proportion of financial institutions. There exists a substantial amount of research dealing with this task, most commonly referred to as VaR backtesting . A new generation of “self‐learning” VaR...

This commentary discusses issues related to the important task of separating the spreads of fixed income securities into various components, related to liquidity, credit, and the duration and convexity of cashflows. This treatment is intended to provide intuition and a general framework for...

The author surveys how recent crises—in particular, the LTCM collapse of 1998 and the events of September 11, 2001—have influenced the application and interpretation of risk models by various practitioners within the financial markets. The article highlights notable differences in risk...

This article discusses credit migration of diversified loan pool securitizations, as evidenced by the ratings transitions of mortgage‐backed securities (MBS) and asset‐backed securities (ABS). The authors contrast the ratings (i.e., credit) stability of MBS and ABS relative to ratings...