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...

We study the effect of counterparty risk on the stability of a banking system using stylized banking cascade models calibrated with UK exposure and balance sheet data from regulatory reports. We observe the development of a fragile phase, at which small perturbations to banks' capital reserves...

We introduce a methodology from geophysics, Singular Spectrum Analysis (SSA), to obtain stable, noise-cleaned correlations for long term risk (e.g. counterparty risk). SSA is applied to time series to smooth them in a robust manner. The SSA-smoothed time series are then used to obtain the...

High sovereign debt in advanced economies has recently revived the debate about the role of coordination problems and self-fulfilling beliefs as drivers of sovereign default risk. I show how default risk can be decomposed in a solvency-risk component and a coordination-risk component. I then...

The purpose of the Special Issue "Quantitative Methods in Economics and Finance" of the journal Risks was to provide a collection of papers that reflect the latest research and problems of pricing complex derivates, simulation pricing, analysis of financial markets, and volatility of exchange...

How can risk of a company be allocated to its divisions and attributed to risk factors? The Euler principle allows for an economically justified allocation of risk to different divisions. We introduce a method that generalizes the Euler principle to attribute risk to its driving factors when...