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Risk Bearing, Implicit Financial Services and Specialization in the Financial Industry
Wang, J. Christina - 2009
This paper makes three points regarding the proper measurement of the output of financial intermediaries. Two of them … concern the measurement of nominal financial output, especially banking output. First, we show that, to impute the nominal … output will be overstated, and the bias can be large (about 25 percent). Second, we argue that, according to finance theory …
Persistent link: https://www.econbiz.de/10012764900
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The Risk-Adjusted Cost of Financial Distress
Almeida, Heitor - 2010
In this paper we argue that risk-adjustment matters for the valuation of financial distress costs, since financial distress is more likely to happen in bad times. Systematic distress risk implies that the risk-adjusted probability of financial distress is larger than the historical probability....
Persistent link: https://www.econbiz.de/10012761946
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Aig in Hindsight
McDonald, Robert L. - 2015
The near-failure on September 16, 2008, of American International Group (AIG) was an iconic moment in the financial crisis. Two large bets on real estate made with funding that was vulnerable to bank-run like behavior on the part of funders pushed AIG to the brink of bankruptcy. AIG used...
Persistent link: https://www.econbiz.de/10013024150
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Financial Risk Measurement for Financial Risk Management
Andersen, Torben G. - 2012
Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or … cross-fertilize the academic and practitioner communities, promoting improved market risk measurement technologies that draw …
Persistent link: https://www.econbiz.de/10013106309
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Banks' Risk Exposures
Begenau, Juliane - 2015
This paper studies U.S. banks' exposure to interest rate and credit risk. We exploit the factor structure in interest rates to represent many bank positions in terms of simple factor portfolios. This approach delivers time varying measures of exposure that are comparable across banks as well as...
Persistent link: https://www.econbiz.de/10013019509
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Bailouts, the Incentive to Manage Risk, and Financial Crises
Panageas, Stavros - 2010
A firm's termination leads to bankruptcy costs. This may create an incentive for outside stakeholders or the firm's debtholders to bail out the firm as bankruptcy looms. Because of this implicit guarantee, firm shareholders have an incentive to increase volatility in order to exploit the...
Persistent link: https://www.econbiz.de/10013152555
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On Fintech and Financial Inclusion
Philippon, Thomas - 2020
The cost of financial intermediation has declined in recent years thanks to technological progress and increased competition. I document this fact and I analyze two features of new financial technologies that have stirred controversy: returns to scale, and the use of big data and machine...
Persistent link: https://www.econbiz.de/10012831538
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Credit Spreads as Predictors of Real-Time Economic Activity : A Bayesian Model-Averaging Approach
Faust, Jon - 2011
Employing a large number of real and financial indicators, we use Bayesian Model Averaging (BMA) to forecast real-time measures of economic activity. Importantly, the predictor set includes option-adjusted credit spread indexes based on bond portfolios sorted by maturity and credit risk as...
Persistent link: https://www.econbiz.de/10013130981
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The Inefficiency of Refinancing : Why Prepayment Penalties are Good for Risky Borrowers
Mayer, Christopher J. - 2010
This paper explores the practice of mortgage refinancing in a dynamic competitive lending model with risky borrowers and costly default. We show that prepayment penalties improve welfare by ensuring longer-term lending contracts, which prevents the mortgage pools from becoming disproportionately...
Persistent link: https://www.econbiz.de/10013135393
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Crashes and Collateralized Lending
Jurek, Jakub W. - 2011
This paper develops a parsimonious static model for characterizing financing terms in collateralized lending markets. We characterize the systematic risk exposures for a variety of securities and develop a simple indifference-pricing framework to value the systematic crash risk exposure of the...
Persistent link: https://www.econbiz.de/10013120294