Within the Internal Ratings-Based (IRB) approach of Basel II it is assumed that idiosyncratic risk has been fully diversified away. The impact of undiversified idiosyncratic risk on portfolio Value-at-Risk can be quantified via a granularity adjustment (GA). We provide an analytic formula for...

In 2005 the Internal Ratings Based (IRB) approach of "Basel II" was enhanced by a "treatment of double default effects" to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several severe problems of this approach and presents a...

We study optimal investment in technologies characterized by the learning curve. There are two investment patterns depending on the shape of the learning curve. If the learning process is slow, firms invest relatively late and on a larger scale. If the curve is steep, firms invest earlier and on...

Solvency II involves a disruption in the asset liability. In this paper, we are interested in investing in some risky asset classes and then discuss solutions that institutional investors can consider with some new calculations. One thing is certain: the relationship with its management company...

We show that Quantitative Easing (QE) stimulates investment via a corporate-bond lending channel. Fed's large-scale asset purchases of MBS and treasuries through QE creates a vacuum of safe assets, prompting safer firms to invest more by issuing relatively "safe'' bonds. Using micro-data around...

This paper applies Magni's (2011) Aggregate Return On Investment (AROI)to investment performance measurement. We show that the ratio of undiscountednet cash flow to undiscounted invested capital is not a naive metric (itseemingly does not take the time value of money into account). It is a...

Value-at-Risk bounds for aggregated risks have been derived in the literature in settings where besides the marginal distributions of the individual risk factors one-sided bounds for the joint distribution respectively the copula of the risks are available. In applications it turns out that...

Effective risk management is a core competency of successful entrepreneurs and investors. The entrepreneur should determine what the most important uncertainties are and how to test and mitigate those uncertainties at the lowest cost. Getting Funded develops frameworks and tools for...

We develop a fixed income portfolio framework capturing the exponential decay of contagious intensities between successive default events. We show that the value function of the control problem is the classical solution to a recursive system of second-order uniformly parabolic...

We develop a model to characterize and quantify the effects of stock, option, and fixed compensation on a manager's risk-taking incentive and investment choice. We find the average chief executive officer's (CEO) compensation contract incentivizes overinvestment by 1.3 percentage points per...