A credit valuation adjustment (CVA) is an adjustment applied to the value of a derivative contract or a portfolio of derivatives to account for counterparty credit risk. Measuring CVA requires combining models of market and credit risk to estimate a counterparty's risk of default together with...

Developing analytic techniques for potential future exposure (PFE) of a general type transaction and applying it to credit value adjustment (CVA) and wrong way risk (WWR). The solutions provide a transparent and computationally friendly analytic formulas and good quality analytic estimates of...

The calculation of the capital charge for CVA risk, as required by the Basel Committee on Banking Supervision, is usually rather unstable due to the volatility of CDS spreads. Since credit derivatives on single names are not very liquid, the implied adjustments in capital charges could be...

This paper proposes a framework that decomposes the market risk into three components: upside, downside, and tail risk. Their risk premiums can be estimated using information from either the index options market or the stock market. The estimated premiums from both markets share two important...

We show that time-varying volatility of volatility is a significant risk factor which affects the cross-section and the time-series of index and VIX option returns, beyond volatility risk itself. Volatility and volatility-of-volatility measures, identified model-free from options data as the VIX...

In this thesis I develop a model for describing the dynamic behavior of Credit Migration Matrices under a Point-in-time Rating Philosophy. Characteristics of the yearly Migration Matrices following a Point-in-Time Philosophy are presented. Through the introduction of the concept of Rating...

Commodity price fluctuations can exert a large impact on macroeconomic fundamentals in commodity-dependent economies. We document a large heterogeneity in country-specific commodity price, inflation, trade values and foreign exchange risks among 119 commodity exporters and importers. We propose...

We investigate risk averse agents who manage risk by trading financial securities in a market that we call a risk market. We assume this market is perfectly competitive and complete. When risk aversion is expressed using risk measures, the (bundle of) prices for financial securities turns out to...

This paper introduces a new macro-financial continuous-time model for the term structure of interest rates assuming that the instantaneous interest rate converges to a certain long-term mean level that depends on the business cycle. In short, our new model assumes that this mean reversion level...