Related papers: Negative interest rates: why and how?
Four radical ideas are presented. First, that the rationale for cancellation of principal can be modified in modern banking. Second, that non-cancellation of loan principal upon payment may cure an old problem of maintenance of positive…
In this paper, we investigate the impact of mortgage rates on home prices, and how the impact may be used to help property purchase discussions at individual buyer level and to adjust home price indices across time. A mortgage-rate-adjusted…
Managing a portfolio to a risk model can tilt the portfolio toward weaknesses of the model. As a result, the optimized portfolio acquires downside exposure to uncertainty in the model itself, what we call "second order risk." We propose a…
This paper derives explicit formulas for both the small and large time limits of the implied volatility in the minimal market model. It is shown that interest rates do impact on the implied volatility in the long run even though they are…
Interest-rate risk is a key factor for property-casualty insurer capital. P&C companies tend to be highly leveraged, with bond holdings much greater than capital. For GAAP capital, bonds are marked to market but liabilities are not, so…
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking…
We explore a model of the interaction between banks and outside investors in which the ability of banks to issue inside money (short-term liabilities believed to be convertible into currency at par) can generate a collapse in asset prices…
People often face trade-offs between costs and benefits occurring at various points in time. The predominant discounting approach is to use the exponential form. Central to this approach is the discount rate, a unique parameter that…
Many countries have adopted negative interest rate policies with tiering remuneration, which allows for exemption from negative rates. This practice has led to higher interbank trading volumes, with market rates ranging between zero and the…
This paper analyzes the hypothesis that returns play a risk-compensating role in the market for corporate revolving lines of credit. Specifically, we test whether borrower risk and the expected return on these debt instruments are…
Peer-to-peer (P2P) lending is a fast growing financial technology (FinTech) trend that is displacing traditional retail banking. Studies on P2P lending have focused on predicting individual interest rates or default probabilities. However,…
We study several aspects of the so-called low-vol and low-beta anomalies, some already documented (such as the universality of the effect over different geographical zones), others hitherto not clearly discussed in the literature. Our most…
Compound interest as well as inflation grows exponentially with time, whereas other means to repay debt grow polynomially. For this and other, mostly political, reasons, debt without inflation is unsustainable. We suggest a discontinuous…
In the aftermath of the burst of the ``new economy'' bubble in 2000, the Federal Reserve aggressively reduced short-term rates yields in less than two years from 6.5% to 1.25% in an attempt to coax forth a stronger recovery of the US…
This paper investigates the impact of monetary policy surprises on U.S. Treasury bond yields and the implications for portfolio managers. Based on the supply and demand model, traditional economic theories suggest that Federal Reserve bond…
Trading pressure from one asset can move the price of another, a phenomenon referred to as cross impact. Using tick-by-tick data spanning 5 years for 500 assets listed in the United States, we identify the features that make cross-impact…
An important issue within the present economic crisis is understanding the dynamics of the public debt of a given country, and how the behavior of average consumers and tax payers in that country affects it. Starting from a model of the…
Refraction of obliquely incident plane waves due to the interface of a vacuous half-space and a half-space occupied by a simply moving, nondissipative, isotropic dielectric-magnetic medium is considered, when the medium's velocity lies…
Negative superhumps are photometric modulations in cataclysmic variables with periods slightly shorter than the orbital period. They are usually attributed to retrograde nodal precession of a tilted accretion disk, although the origin and…
We present an elementary analysis of the dynamical aspects of the GDP / government surplus multiplier with relevance to the assessment of a country's debt repayment policy. We show the (at first) counter intuitive result that in order to…