Security baskets and index-lined securities are securities whose values are functions of the cash flows or values of other assets. Creation of these "composite" securities would seem to be redundant since investors can cost1ess1y replicate them. In this paper we study the existence and optimal...

The financial crisis of 2008 was caused in part by speculative investment in sophisticated derivatives. In enacting the Dodd-Frank Act, Congress sought to address the problem of speculative investment, but merely transferred that authority to various agencies, which have not yet found a...

This article shows how indicators of agents' inflation expectations can be derived from the prices of various financial instruments and presents the estimates obtained for the euro area and the United States. The results show that these metrics have reacted to economic and monetary decisions...

We analyze how speculative financial innovation affects stock prices, option prices, risk premium, market liquidity, and investor welfare in an economy with heterogeneous beliefs. When investors disagree about the covariance of the newly introduced stocks with the original stocks, we show that...

Ongoing financial innovation and greater information availability increase the tradability of bank assets and reduce banks' dependence on individual bank managers as private information in the lending process declines. In this paper we argue that this has two effects on banks, with opposing...

Security baskets and index-lined securities are securities whose values are functions of the cash flows or values of other assets. Creation of these "composite" securities would seem to be redundant since investors can cost1ess1y replicate them. In this paper we study the existence and optimal...

Financial Derivatives have established themselves as a major driving force in the international monetary sphere in the recent past. Financial Derivatives were originally used as an effective monetary instrument to multiply the wealth through ripple effect, of late, these instruments are also...