This research explores the role that collateral plays in sorting borrowers according to risk classes in the secured credit market. Two distinct paradigms exist in the commercial loan market literature on risk-sorting based on collateral: (a) the sorting-by-observed-risk paradigm, which predicts a positive association between collateral and borrower risk; and (b) the sorting-by-private-informati...

Selection of estimators is an essential task in modeling. A general framework is that the estimators of a distribution are obtained by minimizing a function (the estimating function) and assessed using another function (the assessment function). A classical case is that both functions estimate an information risk (specifically cross-entropy); this corresponds to using maximum likelihood estimat...

We study profit maximization vs risk approaches for the standard newsvendor problemwith uncertainty in demand as well as a generalized version with uncertainty in the shortage cost (as often applies in practice). We consider two well-known risk approaches: Value-at-Risk (VaR) included as a constraint and Conditional Value-at-Risk (CVaR). We first derive the explicit expressions of the optimal s...

The tail mean–variance model was recently introduced for use in risk management and portfolio choice; it involves a criterion that focuses on the risk of rare but large losses, which is particularly importantwhen losses have heavy-tailed distributions. If returns or losses follow a multivariate elliptical distribution, the use of risk measures that satisfy certain well-known properties is equiv...

This paper proposes two types of stochastic correlation structures for Multivariate Stochastic Volatility (MSV) models, namely the constant correlation (CC) MSV and dynamic correlation (DC) MSV models, from which the stochastic covariance structures could be obtained easily. Both structures can be used for purposes of optimal portfolio and risk management, and for calculating Value-at-Risk (VaR...