From a banking supervisory perspective, this paper analyses aspects of market risk of an aggregated trading portfolio comprised of the trading books of 11 German banks with a regulatory approved internal market risk model. Based on real, clean profit and loss data and Value-at-Risk estimates of...

This paper studies estimation and specification testing in threshold regression with endogeneity. Three key results differ from those in regular models. First, both the threshold point and the threshold effect parameters are shown to be identified without the need for instrumentation. Second, in...

Tail risk refers to the possibility that a rare event would adversely affect the value of a portfolio in a significant manner. It became much more relevant due to recent periods of strong market turbulence.We describe how to quantify such risk, which tail risk protection strategies were...

Public policy addressing the harmful practice of adolescent marriage tends to leave out men, as prospective grooms. Using micro-level data from Nigeria in combination with plausible instrumental variables, we find that a male's education significantly decreases the likelihood that he marries an...

Since the 1970s the characteristics of international business cycles have changed and deeper economic integration has modified the features of cross-country comovement. We formally test for correlation shifts in measures of real economic activity and economic/financial integration. In Europe we...

We propose an easily implementable test of the validity of a set of theoretical restrictions on the relationship between economic variables, which do not necessarily identify the data generating process. The restrictions can be derived from any model of interactions, allowing censoring and...

Responsible use of any portfolio model that incorporates correlation structure requires knowledge of its sampling distribution. This is especially true of models used in stress testing, or ones requiring the specification of particular scenarios with particular correlation values (e.g. in...

We propose a nonparametric procedure for detecting and dating multiple change points in the correlation matrix of a sequence of random variables. The procedure is based on a test for changes in correlation matrices at an unknown point in time recently proposed by Wied (2014). Although the...

The exponential GARCH (EGARCH) model introduced by Nelson (1991) is a popular model for discrete time volatility since it allows for asymmetric effects and naturally ensures positivity even when including exogenous variables. Estimation and inference is usually done via maximum likelihood....

We propose novel misspecification tests of semiparametric and fully parametric univariate diffusion models based on the estimators developed in Kristensen (Journal of Econometrics, 2010). We first demonstrate that given a preliminary estimator of either the drift or the diffusion term in a...