In this paper we present a new approach to modelling the total economic capital required to protect a financial institution against possible losses. The approach takes into account the correlation between risk types and in this respect it improves upon the conventional practice that assumes perfectly correlated risks. A statistical model is built and Monte Carlo simulation is used to estimate t...

In this paper fiscal policy is examined for an open economy characterised by unemployment due to efficiency wages. We allow for capital and firm mobility in a model where the government chooses the level of wage, source-based capital and profit taxation. The taxing choices of governments are analyzed in scenarios which differ with respect to the constraints imposed on the set of available taxes...

As with all aspects of business and the economy, information security is an economic function. Security can be modeled as a maintenance or insurance cost as a relative function but never in absolute terms. As such, security can be seen as a cost function that leads to the prevention of loss, but not one that can create gains (or profit). With the role of a capital investment to provide a return...

In this document a method is discussed to incorporate stochastic Loss-Given-Default (LGD) in factor models, i.e. structural models for credit risk. The general idea exhibited in this text is to introduce a common dependence of the LGD and the probability of default (PD) on a latent variable, representing the systemic risk. Though our theory can be applied to any arbitrary firm-value model and a...

We examine the relation between venture capital (VC) investments and mergers and acquisitions (M&A) activity around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals. We als...

In an effort to bolster soundness standards in banking, the 2006 international regulatory agreement of Basel II requires globally active banks to include operational risk in estimating regulatory and economic capital to be held against major types of risk. This paper discusses practical issues faced by a bank in designing and implementing an operational risk capital model. Focusing on the use o...

a r t i c l e i n f o a b s t r a c t In this paper we study the optimal design of credit derivative contracts when banks have private information about their ability in the loan market and are subject to capital requirements. First, we prove that when banks are subject to a maximum loss capital requirement the optimal signaling contract is a binary credit default basket. Second, we show that i...

This article uses Bourdieu’s analysis of peasant life in the Bearn to illuminate a changing but resilient rural culture in mid-twentieth century Wales. Rather than finding their culture and language eroded by economic and social change, Welsh speaking participants in this biographical study used the education system to build upon their existing cultural capital previously cultivated through rel...

In an intensifying competition banks are forced to develop and implement enterprise wide integrated risk-return management systems. Financial risks have to be limited and managed from a bank wide portfolio perspective. Risk management rules must be accomplished from internal and regulatory points of view. Expected returns need to be maximized subject to these constraints, leading to a generaliz...

Unemployment, Social Capital, and Subjective Well-Being It has been shown in past research that unemployment has a large negative impact on subjective well-being of individuals. In this paper, I explore whether and to what extent people with more social capital are sheltered from the harmful effects of unemployment. Using data from the German Socio-Economic Panel 1984-2004, I find that social c...