This paper develops a continuous time modeling approach for making optimal asset allocation decisions. Macroeconomic and "nancial factors are explicitly modeled as Gaussian stochastic processes which directly a!ect the mean returns of the assets. We employ methods of risk sensitive control theory, thereby using an in"nite horizon objective that is natural and features the long run expected grow...

Modern systems of risk management in financial institutions require a process of estimation of the amount of capital that is needed to cover losses arising from various types of risk and its allocation to business units in order to measure their risk-adjusted performance. In this paper we describe the structure of operational risk economic capital estimation model suitable for implementation of...

The paper analyzes optimal portfolio choice when the investment opportunity set is driven by multi-stochastic factors, namely; stochastic interest rates, stochastic volatility and stochastic inflation. The analysis is implemented in an incomplete market setting, where the number of risk sources is larger than the number of risky assets. The model segregates the effect of inflation from the othe...

An elementary step towards a quantitative assessment of the risks of new compounds to the environment is to calculate their predicted environmental concentrations (PEC). The aim of this study was to use a life-cycle perspective to model the quantities of engineered nanoparticles released into the environment. The quantification was based on a substance flow analysis from products to air, soil a...

Risk capital is the contribution of an exposure to the default risk of a financial institution. We investigate its relationship with required shareholder returns, showing that the use of return on risk capital (RAROC) as a risk-adjusted performance measure is inconsistent with the standard theory of financial valuation and that using this one measure to represent at the same time both contribut...

Approximate Incremental Value-at-Risk formulae provide an easy-to-use preliminary guideline for risk allocation. Both the cases of risk adding and risk pooling are examined and beta-based formulae achieved. Results highlight how much the conditions for adding new risky positions are stronger than those required for risk pooling. JEL classification: C13; D81; G11; G12.