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on Risk Management |
| By: | Hege, Ulrich; Feess, Eberhard |
| Abstract: | This paper analyzes optimal bank capital requirements when regulation can be differentiated according to banks’ heterogeneous risk-assessment capabilities. The new Basel II Accord provides the opportunity to do by introducing distinct regulatory systems for banks authorized to apply internal ratings and externally rated banks. |
| Keywords: | bank capital regulation; capital adequacy; bank competition; risk-taking; Basel Accord; internal ratings |
| JEL: | H41 K13 |
| Date: | 2007–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:0879&r=rmg |
| By: | Yolanda Santana-Jiménez (Universidad de Las Palmas de Gran Canaria); Jorge V. Pérez-Rodríguez (Universidad de Las Palmas de Gran Canaria) |
| Abstract: | This paper studies the exchange rate risk of Euro, Pound and Yen against US Dollar before and after the EMU. The key question is to analyse the impact of the Euro to exchange rate risks. The risk is measured by estimating risk price coefficient (RPC) from an excess return equation. A conditional heteroskedastic variance model with time-varying mean is estimated for this purpose. Recursive estimates are used to examine the evolution of the parameters and to find out time-varying risk premia. Results show that after a period of adaptation following the introduction of the Euro, the Euro/US Dollar RPC decreased. |
| Keywords: | Exchange rate risk, GARCH-M, risk-price, times series, recursive estimation |
| JEL: | G15 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:aee:wpaper:0706&r=rmg |
| By: | Carey, Alexander |
| Abstract: | In this paper we recover the Black-Scholes and local volatility pricing engines in the presence of an unspecified, fully stochastic volatility. The input volatility functions are allowed to fluctuate randomly and to depend on time to expiration in a systematic way, bringing the underlying theory in line with industry experience and practice. More generally we show that to price a European-exercise path-(in)dependent option, it is enough to model the evolution of the variance of instantaneous returns over the natural filtration of the underlying security. We call the square root of this new process natural volatility. We develop the associated concept of path-conditional forward volatility, via which the natural volatility can be directly specified in an economically meaningful way. |
| Keywords: | natural filtration; natural volatility; stochastic volatility; local volatility; path-dependent volatility; change of measure; change of filtration; martingale valuation; Black-Scholes; path-conditional forward price; path-conditional forward volatility |
| JEL: | G13 |
| Date: | 2008–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:6709&r=rmg |