Related papers: Liquidation Efficiency and the Bank-Bond Margin
We test the hypothesis that interconnections across financial institutions can be explained by a diversification motive. This idea stems from the empirical evidence of the existence of long-term exposures that cannot be explained by a…
We present an empirical analysis of the microstructure of financial markets and, in particular, of the static and dynamic properties of liquidity. We find that on relatively large time scales (15 minutes) large price fluctuations are…
This paper provides a framework for modeling financial contagion in a network subject to fire sales and price impacts, but allowing for firms to borrow to cover their shortfall as well. We consider both uncollateralized and collateralized…
Microfinance provides strength to boost the economic activities of low-income earners and thus contributes to eradication of poverty. However, microfinance institutions face stringent competition from commercial banks; the growth of…
The interbank market is considered one of the most important channels of contagion. Its network representation, where banks and claims/obligations are represented by nodes and links (respectively), has received a lot of attention in the…
There is an observed basis between repo discounting, implied from market repo rates, and bond discounting, stripped from the market prices of the underlying bonds. Here, this basis is explained as a convexity effect arising from the…
The writers propose a mathematical Method for deriving risk weights which describe how a borrower's income, relative to their debt service obligations (serviceability) affects the probability of default of the loan. The Method considers the…
We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that…
This paper develops a dynamic equilibrium model of the insurance market that jointly characterizes insurers' underwriting, investment, recapitalization, and dividend policies under model uncertainty and financial frictions. Competitive…
We give a detailed account of correlations between credit sector/quality and treasury curve factors, using the robust framework of the Barclays POINT Global Risk Model. Consistent with earlier studies, we find a strong negative correlation…
In this paper, I consider a simple heterogeneous agents model of a production economy with uncertain climate change and examine constrained efficient carbon taxation. If there are frictionless, complete financial markets, the simple model…
The collateral choice option gives the collateral posting party the opportunity to switch between different collateral currencies which is well-known to impact the asset price. Quantification of the option's value is of practical importance…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
In the third part of this series we introduce consistent relative value measures for CDS-Bond basis trades using the bond-implied CDS term structure derived from fitted survival rate curves. We explain why this measure is better than the…
We present a detailed analysis of interest rate derivatives valuation under credit risk and collateral modeling. We show how the credit and collateral extended valuation framework in Pallavicini et al (2011), and the related collateralized…
How does the monetary and fiscal policy mix alter households' saving incentives? To answer these questions, we build a heterogenous agents New Keynesian model where three different types of agents can save in assets with different liquidity…
This paper examines a semi-analytical approach for pricing American options in time-inhomogeneous models characterized by negative interest rates (for equity/FX) or negative convenience yields (for commodities/cryptocurrencies). Under such…
We consider in a market model the cooperative emergence of value due to a positive feedback between perception of needs and demand. Here we consider also a negative feedback from production of the traded products, and find that this…