This paper determines first-passage time distributions with a twofold emphasis on the dynamics of the state variables and interest rate uncertainty. Underlyings follow two-dimensional geometric Brownian motions, Ornstein-Uhlenbeck processes or Poisson jump-diffusion processes, and boundaries are...

This paper studies banking liquidity crises under the assumption that the government may have private benefits in bailing-out a collapsing banking sector for reputation concerns. This political distortion feeds political uncertainty, as citizens may not agree with a bailout decision and...

This paper highlights the cross-country spread of self-fulfilling financial crises through an informational channel. It sets up a two-country framework of investment with strategic complementarities and incomplete information about economic fundamentals. Each market may be subject to sudden...

This paper studies bank solvency crises due to macroeconomic shocks in a model where government is prone to bailout because of cronyism. Citizens can dismiss the government and overrule its decision if they believe that a bailout is not economically justified. The results are as follows. First,...

This paper highlights the international spread of bank runs in a third-generation model of financial crises through an informational channel. Banks' short-term liabilities include loans granted by foreign creditors who have imperfect information about the liquidation costs of banks' assets. A...

Cronyism provides policymakers with marked incentives to repay sovereign debt. This takes place at the expense of the average citizen who bears both steep costs of debt repudiation and high costs of debt service, as clientelism increases both financial fragility and the debt burden. The paper...

This paper highlights the spread of bank panics across countries, as the public reassesses governments' propensity to bailouts. Policymakers decide whether to save collapsing banking systems by weighing social costs of crises against the costs associated with raising taxes to finance rescue...

This paper reports fairly accurate simulations of insurance-linked securities within an arbitrage-free framework, while accounting for catastrophic events and allowing for stochastic interest rates. Assessing these contingent claims exhibits features of instability rooted in the discontinuity of...

This paper tailors Monte Carlo simulations to the scope of binary options whose underlying dynamics obey jump-diffusion or jump-mean-reverting processes and may not be traded. In the process, we justify the existence of well-defined arbitrage prices notwithstanding a framework of incomplete...

Key structures for insurance risk transfer to capital markets are insurance-linked securities issued by industrial corporations and insurance-reinsurance companies. This paper develops an arbitrage approach to valuing these structured products for non-catastrophic events in a framework of...