Little progress has been made so far in addressing - in a comprehensive way - the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines...

Little progress has been made so far in addressing — in a comprehensive way — the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines...

Little progress has been made so far in addressing — in a comprehensive way — the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines...

We highlight the ex ante risk-shifting incentives faced by a bank's shareholders/managers when CoCos (contingent convertible capital) are part of the capital structure. The risk shifting incentive arises from the wealth transfers that the shareholders will receive upon the CoCo's conversion...

We study default in a multi-firm equilibrium setting with incomplete information. Defaults are modeled to be consistent with the firm's balance sheet and aggregation over firms. Market prices and quantities of risk are derived in closed form. If the number of firms increases, the market prices...

We consider a situation in which general financial products such as options, CDS, and other derivatives, are traded to investigate the effect of cross-ownerships on market stability. We prove the existence and uniqueness of a clearing payment vector under the assumption of the fictitious default...

Using detailed data of margin investors' leverage ratios and trading activities, we provide novel evidence for the effect of margin-induced trading on the cross-section of stock returns during the recent market turmoil in China. We first document the deleverge-induced sales. Aggregating this...

This paper explores the contagious propagation of jumps among international stock market indices by exploiting a rich panel of stock and options data. We propose a multivariate option pricing model designed to allow for, but not superimpose, time and space amplification of jumps in option...

This paper investigates how global market sentiment propagates among the markets and how the interdependency through the propagation changes during the course of the US subprime crisis. We adopt a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model, and use a sample...

We propose an equilibrium model for defaultable bonds that are subject to contagion risk. Contagion arises because agents with "fragile beliefs'' are uncertain about the underlying economic state and its probability. Estimation on sovereign European credit default swaps (CDS) data shows that...