We test the implications of Flannery's (1986) and Diamond's (1991) models concerning the effects of risk and asymmetric … choices. We employ data on over 6,000 commercial loans from 53 large U.S. banks. Our results for low-risk firms are consistent … with the predictions of both theoretical models, but our findings for high-risk firms conflict with the predictions of …

Synthetic collateralized debt obligations, or synthetic CDOs, are popular vehicles for trading the credit risk of a … the risk characteristics of the tranches of synthetic CDOs. The analysis shows that although the more junior CDO tranches …, they bear a majority of the credit risk. One implication is that credit risk disclosures relying on notional amounts are …

with the capital charges generated by two possible earnings-at-risk internal capital allocation models. We find that in … general, Basel's capital ratios are closer to those generated by our models for the groups with lower credit risk. We …

of misspecification. The results indicate that single factor models of instantaneous default risk face a significant … generating both relatively flat yield spreads when firms have low credit risk and steeper yield spreads when firms have higher … credit risk. …

Value-at-Risk forecasts internally estimated by banks. For a sample of large bank holding companies, we evaluate the … performance of banks' trading risk models by examining the statistical accuracy of the VaR forecasts. Although a substantial … literature has examined the statistical and economic meaning of Value-at-Risk models, this article is the first to provide a …