Target is a real time gross settlement (RTGS) large value payment network operated by European central banks that eliminates systemic risk. Euro1 is a privately operated delayed net settlement (DNS) network that reduces substantially systemic risk but does not eliminate it. This difference makes...

The paper examines a continuous-time delegated monitoring problem between competitive investors and an impatient bank monitoring a pool of long-term loans subject to Markovian “contagion.” Moral hazard induces a foreclosure bias unless the bank is compensated with the right...

In this paper, we take up the analysis of a principal/agent model with moral hazard introduced by Pagès (J. Financ. Intermed. doi:10.1016/j.jfi.2012.06.001, 2012), with optimal contracting between competitive investors and an impatient bank monitoring a pool of long-term loans subject to...

When supervisors have imperfect information about the soundness of banks, they may be unaware of insolvency problems that develop in the interval between on-site examinations. Supervising banks more often will alleviate this problem but will increase the costs of supervision. This paper analyzes...

In the modern theory of finance, the valuation of derivative assets is commonly based on a replication argument. When there are transaction costs, this argument is no longer valid. In this paper, we try to address the general problem of finding the optimal portfolio among those which dominate a...

The paper presents a one-factor affine model of the term structure of Libor rates with autocorrelated measurement errors. It can be viewed as a central tendency model, with the theoretical arbitrage-free rates serving as stochastic means to which the observed rates revert. Two estimation...

Researchers have sometimes argued that the recent ascent in stock prices could be explained in some measure by changes in expectations about long-run future dividend growth. For example, Barsky and De Long (1993) argue that a small random walk component in the growth rate of dividends, when...

The paper applies a reduced-form model to uncover from secondary market's Brady bond prices, together with Libor interest rates, how the risk of sovereign default is perceived to depend upon time. The methodology is implemented on a particular issue, a discount bond issued by Brazil and maturing...

Pricing should speed up the substitution of low cost electronic payments for expensive paper-based transactions and cash. But by how much? Norway has explicitly priced individual payment transactions and rapidly shifted to electronic payments while the Netherlands has experienced the same shift...

Electronic payments are considerably cheaper than their paper-based alternatives. Similarly, ATMs are a more cost-efficient way to deliver certain depositor services than are branch offices. As the share of electronic payments in 12 European countries rose from 0.43 in 1987 to 0.79 in 1999 and...