The statistics that summarise probability density functions (pdfs) implied from option prices can be used to assess market expectations about future uncertainty, asymmetry and the probability of extreme movements in asset prices. A time-series analysis of these statistics for equity index and...

The reliability of established trade classification algorithms that identify the liquidity demander in financial markets transaction data has been questioned due to an increase in the frequency of quote changes. Hence, this paper proposes a new method. While established algorithms rely on an ad...

We propose a structural framework for the development of system-wide financial stress tests with multiple interacting contagion, amplification channels and heterogeneous financial institutions. This framework conceptualises financial systems through the lens of five building blocks: financial...

This paper examines the role of defined benefit company pensions in amplifying the effect of common shocks to companies' stock market valuations. It identifies and evaluates the significance of two channels of amplification: cross-holdings of equities in pension schemes, and leverage induced by...

We develop a model of dealer intermediation in bond markets that takes account of how changing regulatory requirements for banks since the financial crisis, in particular, the introduction of minimum leverage ratio requirements, affect the cost and ability of dealer banks to provide...

This paper provides a means of estimating how ‘Solvency II' regulations — introduced in the European Union in January 2016 — might affect UK life insurers' incentives to hold different types of financial assets, and how these asset holdings are likely to vary in the face of hypothetical...

We quantify the size of a fire-sale externality in the derivatives market in the absence of a macroprudential buffer on top of microprudential initial margin requirements. We show how this varies over the financial cycle with market volatility. We then assess the ability of a macroprudential...

We have developed a structural model to explain defined benefit (DB) pension funds' investment behaviour. The model is calibrated to the aggregate UK DB pension fund and four different cohorts of funds. We use the model to estimate how pension funds can be expected to adjust their asset...

We identify the degree to which changes in gilt repo market functioning have been driven by changes in the supply of — and the demand for — market intermediation. To do so, we use a structural vector auto regression (SVAR) model with sign and zero restrictions. We find that changes in gilt...

We investigate the impact that the publication of the Bank of England's Financial Stability Report (FSR) has on the stock returns and credit default swap spreads of UK financial institutions. Examining a sample of 73 UK-listed banks and other financial institutions, we find that publication of...