As the fallout from subprime losses clearly demonstrates, the credit risk in residential mortgages is large and economically significant. To manage this risk, this paper proposes the creation of derivative instruments based on the credit losses of a reference mortgage pool. We argue that these...

This paper examines complications that arise in the nonparametric estimation of scale and scope economies. This paper presents a simple nonparametric strategy for estimating cost functions--the localization of the translog functional form--that is both easy to implement and has very desirable...

An examination of the impact of mortgage hedging activities on interest rate volatility considers a wide range of interest rate derivatives to isolate the sources that might be contributing to volatility. Over a rolling window providing estimates of key parameters, the measured effects of...

This paper models bank closure policy for a risk-averse bank that enjoys flat-rate deposit insurance. We find that increasing the level of net worth at which banks are closed can increase or decrease induced risk aversion, as well as increase the likelihood that marginally healthy banks would be...

Most previous empirical research on scale efficiency in banking has found increasing returns to scale only among relatively small banks, and decreasing returns to scale among larger banks. The present study shows that these results were biased by problems in the statistical techniques used and...