Most problematic of the Basel II capital adequacy requirements is the subset of Pillar I, requiring provision for operational risk (OR) as distinct from credit and market risk. Previous tests of the strategic effect of this new regulation from three prior Quality Impact Studies (QIS) conducted...

Prices in spot and futures markets are contemporaneously related according to the theoretical Cost-of-Carry (COC) model. In the literature, on the other hand, futures index price changes are usually found to lead spot index prices changes by up to forty-five minutes. This empirical evidence,...

In an agent-based exchange economy, we measure the loss of wealth for rational agents due to the presence of varying proportions of subrational (boundedly rational) traders that do not know all the needed parameters. We consider two departures from rationality: M-traders use private, stochastic...

We reduce the problem of pricing continuously monitored defaultable securities (namely, barrier type options, corporate debts) under a stochastic interest rate framework to calculations of boundary crossing probabilities (BCP) for Brownian Motion (BM) with stochastic boundaries. For the case...

This study considers whether the slope of the yield curve for New Zealand contains useful economic information. In order to provide some perspective, the present study also contrasts the New Zealnd experience with evidence based on US and Australian data. The princial findings of this study are...

Standard economic models based on rational expectations and homogeneity have problems to explain the complex and volitile nature of financial markets. Recently, boundedly rational and heterogeneous agents models have been developed, and simulated returns are found to exhibit various stylized...

We discuss a solution of the optimal stopping problem for the case when a reward function is a power function of a process with independent stationary increments (random walks or Levy processes) on an infinite time interval. It is shown that an optimal stopping time is the first crossing time...

The use of a conditionally unbiased, but imperfect, volatility proxy can lead to undesirable outcomes in standard methods for comparing conditional variance forecasts. We derive necessary and sufficient conditions on functional form of the loss function for the ranking of competing volatility...

In this paper we elaborate on Swiss Solvency Test (SST) consistent group diversification effects via optimizing the web of capital and risk transfer (CRT) instruments between the legal entities. A group level SST principle states that subsidiaries can be sold by the parent company at their...