Most stock exchange regulators around the world reacted to the 2007-2009 crisis by imposing bans or regulatory constraints on short-selling. Short-selling restrictions were imposed and lifted at different dates in different countries, often applied to different sets of stocks and featured...

We develop a model of financially constrained arbitrage, and use it to study the dynamics of arbitrage capital, liquidity, and asset prices. Arbitrageurs exploit price discrepancies between assets traded in segmented markets, and in doing so provide liquidity to investors. A collateral...

We find that firm-level variance risk premium, estimated as the difference between option-implied and expected variances, has a prominent explanatory power for credit spreads in the presence of market- and firm-level risk control variables identified in the existing literature. Such a...

Arbitrage and liquidity are interrelated. Liquidity facilitates arbitrageurs’ trading on deviations from the law of one price. However, whether arbitrage opportunity leads to an increase or decrease in liquidity depends on the cause of the deviation. A demand shock leads to greater liquidity,...

The recent financial crisis offered an interesting opportunity to analyze the markets'; behavior in a high-volatility framework. In this paper, we analyzed the price discovery process of the Italian banks’ Credit Default Swap (CDS) spreads through the Merton model, extended with the inclusion...

This paper uses two highly liquid S&P 500 and gold exchange-traded funds (ETFs) to evaluate the impact of liquidity and macroeconomic news surprises on the frequency of observing intraday jumps. It explicitly addresses market microstructure noise-induced biases in realized estimators used in...

We examine price discovery and liquidity provision in the secondary market for bitcoin-an asset with a high level of speculative trading. Based on BTC-e's full limit order book over the 2013-2014 period, we find that order informativeness increases with order aggressiveness within the first 10...

The ground-breaking Black-Scholes-Merton model has brought about a generation of derivative pricing models that have been successfully applied in the financial industry. It has been a long standing puzzle that the structural models of credit risk, as an application of the same modeling paradigm,...

We develop two novel approaches to solving for the Laplace transform of a time-changed stochastic process. We discard the standard assumption that the background process (X_t) is Levy. Maintaining the assumption that the business clock (T_t) and the background process are independent, we develop...

We investigate how market participants price and manage counterparty risk in the post-crisis period using confidential trade repository data on single-name credit default swap (CDS) transactions. We find that counterparty risk has a modest impact on the pricing of CDS contracts, but a large...