Changing noise levels have a severe impact on house prices and through the leverage in financing on households wealth. This risk is essential for houses close to airports with uncertain aircraft regimes. We design and calibrate real options based on aircraft noise to hedge against noise risk....

The recent real estate bubble was fuelled by non-risk adjusted lending policies, low interest rates and complex finance vehicles. Mortgage-backed securities (MBS) played a crucial role in the crisis. These vehicles were praised as liquid capital market instruments that allowed mortgage lenders...

Market frictions inhibit perfect replication of property derivatives and dene the property spreadas a price measure in the incomplete real estate market. We identify transaction costs, transactiontime and short sale constraints as the main frictions in this market. Based on these frictions,...

This paper addresses the issue of intergenerational and internationalsharing of longevity and growth risks. Current research on worldwidedemographic changes highlights the importance of longevity risk on financialmarkets and the need to devise optimal hedging vehicles. We present a...

We introduce an adaptive importance sampling method for the loss distribution of credit portfolios based on the Robbins-Monro stochastic approximation procedure. After presenting the subtle construction of the algorithm, we apply our adaptive scheme for calculating the risk figures of a typical...

Although examples of deception and fraud in business have generated widespread interest in themotivations for honest behavior, little is known about individual differences in the propensity totell the truth. This paper highlights the role of honesty as a protected value, maintaining thatsome...

A large literature studies the predictability of stock returns by other lagged nancialvariables in a predictive regression setting. A common feature of widely used testingprocedures is a failing robustness, which may lead to misleading conclusions determinedby the particular features of a small...

We introduce a new class of flexible and tractable matrix a±ne jump-diffusions (AJD) to modelmultivariate sources of financial risk. We first provide a complete transform analysis of this model class,which opens a range of new potential applications to, e.g., multivariate option pricing with...

This paper analyzes the relation between correlation risk and the cross-section of hedge fund returns.Legal framework and investment mandate imply that hedge funds can be severely exposed tocorrelation risk: Hedge funds ability to enter long-short positions can be useful to reduce marketbeta,...

This paper examines the role of bond ratings and the effects of rating-based regulations in thecorporate bond market. Exploiting an unanticipated mechanical change in how the benchmarkLehman bond indices are constructed in 2005, we show that rating-induced market segmentationof the bond market...