Stress testing of real credit portfolios

Stress testing has become a crucial point on the Basel II agenda, mainly as Pillar I estimates do not explicitly take portfolio concentration into account. We start from the credit portfolio of the German pension insurer being a cross-sectional representation of the German economy and subsequently compose three bank portfolios corresponding to a small, medium and large bank. We apply univariate and multivariate stress tests both by using the Internal Rating based (IRB) model and by a model that additionally allows for variation of correlation. In a severe multivariate stress scenario based on historical data for Germany IRB capital requirements increase by more than 80% with little differences between the credit portfolios. If stress testing is additionally applied to correlation, the Value-at-Risk increases by up to 300% and portfolio differences materialize. --Credit Portfolio,Exposure concentration,Stress Testing,Basel II,Economic Capital

Empirical risk analysis of pension insurance: the case of Germany

With this paper we seek to contribute to the literature on pension insurance systems. The financial literature tends to focus exclusively on the US pension insurance system. This is the first major empirical study to address the German occupational pension insurance (PSVaG) plan in Germany. The study is based on a Merton-type one-factor model, in which we determine the credit portfolio risk profile of the occupational pension insurance plan and compare two alternative pricing plans. We find that there is a low, yet non-negligible risk of very high losses that may threaten the existence of the occupational pension insurance plan (PSVaG). While relating risk premiums to firms' default probabilities would cause them to diverge widely, a marginal risk contribution method would produce less pronounced differences compared to the current, uniform pricing plan. --Pension insurance,Risk-adjusted premiums,Credit portfolio risk

Stress testing of real credit portfolios

Stress testing has become a crucial point on the Basel II agenda, mainly as Pillar I estimates do not explicitly take portfolio concentration into account. We start from the credit portfolio of the German pension insurer being a cross-sectional representation of the German economy and subsequently compose three bank portfolios corresponding to a small, medium and large bank. We apply univariate and multivariate stress tests both by using the Internal Rating based (IRB) model and by a model that additionally allows for variation of correlation. In a severe multivariate stress scenario based on historical data for Germany IRB capital requirements increase by more than 80% with little differences between the credit portfolios. If stress testing is additionally applied to correlation, the Value-at-Risk increases by up to 300% and portfolio differences materialize

The fundamental performance of newly privatized firms: evidence from continental Europe

We examine the fundamental performance of 32 companies from 10 Continental European countries that were privatized through public share offerings since 1992. We document strong performance improvements. Specifically, after being privatized, firms significantly increase real sales, become more profitable and improve their operating efficiency. The results remain robust when we split our data into subsamples of companies in regulated and nonregulated industries. Although employment does not change significantly, it decreases in regulated industries.

Global takeover premiums - country vs. industry impact

We analyse the country and industry impact on takeover premiums in Germany, France, the USA and the UK. We find that the level of takeover premiums is highly country specific. The industry only plays a minor role with the exception of the financial sector. Germany and France, both countries exhibit significantly lower premiums than the Anglo-Saxon countries. In Germany, these lower premiums are mainly driven by foreign bidders, in France the opposite holds true.

Länder- versus Brancheneinfluss auf Aktienrenditen: 1973 bis 2002

Country versus Branch Influence on the Yield of Shares: 1973 to 2002 Country factors have for a long time dominated industry effects in explaining stock returns. More recent analyses, however, have identified a rising global industry effect that comes close to the country effect towards the end of the 1990ies. The present study increases the time period covered to 30 years and examines the question in what way the relationship between branch and country effects has developed from the March 2000 drop in share prices. The results show a clear decline in the importance of industry factors. The preceding increase should therefore not be interpreted any longer as an expression of economic and market globalisatio

Empirical risk analysis of pension insurance: the case of Germany

With this paper we seek to contribute to the literature on pension insurance systems. The financial literature tends to focus exclusively on the US pension insurance system. This is the first major empirical study to address the German occupational pension insurance (PSVaG) plan in Germany. The study is based on a Merton-type one-factor model, in which we determine the credit portfolio risk profile of the occupational pension insurance plan and compare two alternative pricing plans. We find that there is a low, yet non-negligible risk of very high losses that may threaten the existence of the occupational pension insurance plan (PSVaG). While relating risk premiums to firms' default probabilities would cause them to diverge widely, a marginal risk contribution method would produce less pronounced differences compared to the current, uniform pricing plan

Financial crises, price discovery, and information transmission: a high-frequency perspective

This paper examines the price discovery processes before and during the 2007–2009 subprime and financial crisis, as well as the subsequent European sovereign crisis, for American and German stock and bond markets, as well as for U.S. Dollar/Euro FX. Based on 5-s intervals, we analyze how asset prices interact conditional on macroeconomic announcements from the USA and Germany. Our results show significant co-movement and spillover effects in returns and volatility, reflecting systematic information transmission mechanisms among asset markets. We document strong state dependence with a substantial increase in inter-asset spillovers and feedback effects during times of crisis