We build a general model for pricing defaultable claims. In addition to the usual ab-sence of arbitrage assumption, we assume that one defaultable asset (at least) looses value when thedefault occurs. We prove that under this assumption, in some standard market ltrations, defaulttimes are...

Using an options-based approach, we compute the value of the state guaranteefor the liability side of CS and UBS. The insurance premiums forthese two system-relevant banks are calculated in a dynamic setup from2004 until 2009 in quarterly steps for time horizons of one and five years.The model...

We propose a simple but effective estimation procedure to extract the level and the volatilitydynamics of a latent macroeconomic factor from a panel of observable indicators. Our approachis based on a multivariate conditionally heteroskedastic exact factor model that cantake into account the...

The persistence of financial instability calls into question the adequacy of the current regulatory regime. Acritical review of the three pillars at the core of current financial regulation exposes some structural flaws.[...]

Stein’s lemma is extended to the case where asset returns have skewed and leptokurticdistributions. The risk premium is still the negative of the covariance of theexcess return with the log SDF.[...] Paul Söderlind]

We study the pricing of political uncertainty in a general equilibrium model of government policy choice. We find that political uncertainty commands a risk premium whose magnitude is larger in poorer economic conditions. Political uncertainty reduces the value of the implicit put protection...

We develop a simple overlapping generations model in which the young have a choice in investing in equities and index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such a long-term investment predicts an equity premium that matches...

In the years following the influential article of Poole (1970), many central banks reoriented their operating procedures to focus more on interest rates and less on monetary aggregates. The rapid restructuring of global financial markets was thought to have led to instability in standard...

We argue that emerging economies borrow short term due to the high risk premium charged by bondholders on long-term debt. First, we present a model where the debt maturity structure is the outcome of a risk sharing problem between the government and bondholders. By issuing long-term debt, the...

In models with a large number of agents who have constant relative risk aversion (CRRA) preferences, the absence of insurance markets for idiosyncratic labour income risk has no effect on the premium for aggregate risk if the distribution of idiosyncratic risk is independent of aggregate shocks....