Risk measurement and pricing of financial positions are based on modeling assumptions, which are common assumptions on the probability distribution of the position's outcomes. We associate a model with a probability measure and investigate model risk by considering a model space. First, we...

In the work of the Basel Committee there has been a tradition ofdistinguishing market from credit risk and to treat both categories independentlyin the calculation of risk capital. In practice positionsin a portfolio depend simultaneously on both market and credit riskfactors. In this case, an...

This paper investigates whether monitoring by bank lenders affects CEO incentives of borrowing firms. We find that an increase in bank monitoring incentives significantly reduce the sensitivity of CEO wealth to stock return volatility (Vega). The results are more profound when bank lenders are...

We investigate how the availability of traded credit default swaps (CDSs) affects the referenced firms' voluntary disclosure choices. CDSs enable lenders to hedge their credit risk exposure, weakening their incentives to monitor borrowers. We predict that reduced lender monitoring in turn leads...

We propose a new method for analysing multi-period stress scenarios for portfolio credit risk more systematically than in the current practice of macro stress testing. Our method quantifies the plausibility of scenarios by considering the distance of the stress scenario from an average scenario....

Why should risk management systems account for parameter uncertainty? In order to answer this question, this paper lets an investor in a credit portfolio face non-diversifiable estimation-driven uncertainty about two parameters: probability of default and asset-return correlation. Bayesian...

This paper uncovers if and how insurance companies react to shocks to collateral in their portfolio of securitized assets. We address this question in the context of commercial real estate cash flow shocks, which are informationally opaque to holders of commercial mortgage-backed securities...

This paper uncovers if and how insurance companies react to shocks to collateral in their portfolio of securitized assets. We address this question in the context of commercial real estate cash flow shocks, which are informationally opaque to holders of commercial mortgage-backed securities...

On 3 December EY hosted a SUERF conference on banking reform with Sir Howard Davies, the Chairman of RBS, and Dame Colette Bowe, the Chairman of the Banking Standards Board, as the two keynote speakers. Professor David Miles (Imperial College) gave the SUERF 2015 Annual Lecture on Capital and...