We study the optimal policies and mean-variance frontiers (MVF) of a multiperiod mean-variance optimization of assets and liabilities (AL). Our model allows for a contemporaneous optimization of the balance-sheet as a whole. This makes the analysis more challenging than in a setting based on...

We analyze the empirical predictions arising from settings of ambiguity aversion in intertemporal heterogenous agents economies. We study equilibria for two tractable wealth-homothetic settings of ambiguity aversion in continuous time. Such settings are motivated by a different robust control...

The financial industry puts the Basle Committee under strain to align regulatory capital with economic capital. This could be reached by allowing more flexibility in the choice of risk measure for regulatory reporting. The authors show that if banks could use the theoretically more sound risk...

One of the most enduring topics in financial theory is the persistence of investment risk across time. Traditional finance lacks methods for considering and hedging non-diversifiable risks. This paper is based on the general equilibrium model of Allen and Gale (1997). We extend their model in...

We examine the quantification of operational risk for banks. We adopt a financial economics approach and interpret operational risk management as a means of optimizing the profitability of an institution along its value chain. We start by defining operational risk and then propose a framework to...

One of the most enduring topics in financial theory is the persistence of investment risk across time. Traditional finance lacks methods for considering and hedging non-diversifiable risks. This paper is based on the general equilibrium model of Allen and Gale (1997). We extend their model in...

We show that for a production unit of a bank with well-defined workflows operational risk can be unambiguously defined and quantitatively modelled. The results of this modelling exercise are relevant for the implementation of a risk management framework: It turns out, that only a small share of...

The paper presents a robust version of a simple two-assets Merton (1969, Review of Economics and Statistics 51, 247-57) model where the optimal choices and the implied shadow market prices of risk for a representative robust decision maker (RDM) can be easily described. With the exception of the...

The Basel Committee on Banking Supervision (quot;the Committeequot;) released a consultative document that included a regulatory capital charge for operational risk. Since the release of the document, the complexity of the concept of quot;operational riskquot; has led to vigorous and recurring...