Probabilities of default (PDs) of loans are of central importance for financial stability. We analyze the PDs, reported quarterly by German financial institutions to Deutsche Bundesbank. The development of PDs is modelled as an AR process of PD changes and an initial PD. Panel regressions show...

Securitization is a financial innovation that experiences a boom-bust cycle, as many other innovations before. This paper analyzes possible reasons for the breakdown of primary and secondary securitization markets, and argues that misaligned incentives along the value chain are the primary cause...

We define a class of risk-taking-neutral (RTN) background risks. These background risks have the property that they will not alter decisions made with respect to another risk, for individuals with HARA utility. If we wish to compare a decision made with and without some exogenous background...