Lead PI: Prof. John Cotter
This work package re-examines the role of risk in equity asset pricing (see also WP 11). It develops new volatility models for the measurement of idiosyncratic risk. It extends our understanding of idiosyncratic risk through modelling its time-series and cross-sectional properties. The WP also examines the risk in financial institutions such as the prediction and consequences of bank distress. The behaviour of asset prices are examined and modelled with applications in asset allocation and hedging.