This paper proposes a new ‘World Volatility Index’, coined WVIX, by constructing the first index that approximates the aggregate volatility level of the G20 countries. The empirical analysis makes use of the factor dynamic conditional correlation model – with an automated methodology to...

We investigate the effect of economic crises on the direction of information flow and price discovery efficiency of spot and futures market by considering the near month Nifty50 index futures and its corresponding spot index. The period of study commences from January, 2004 to December, 2015 and...

Over the last 10 years or so a mathematical theory of bubbles has emerged, following a martingale theory based on an absence of arbitrage, as opposed to an equilibrium theory. This paper attempts to explain the major developments of the theory as it currently stands, including equities, options,...

We propose an explanation for default contagion based on a Lucas model with two independent debt-financed trees. The transmission mechanism is that variations in the size of one tree impact the level of risk premium and the default decision for all borrowers. If a negative shock hits one tree,...

Contingent capital in the form of debt that converts to equity as a bank approaches financial distress offers a potential solution to the problem of banks that are too big to fail. This paper studies the design of contingent convertible bonds and their incentive effects in a structural model...

The extraordinary growth of short volatility strategies creates risks that may trigger the next serious market crash. A low yield, low volatility environment has drawn various market participants into essentially similar short volatility-contingent strategies with a common non-linear risk...

We examine the relation between bank risk management procedures and sales of mortgages during the financial crisis of 2007-2009. Research suggests that banks employing an originate-to-distribute strategy devoted little effort to screening, thereby diminishing their ability to sell loans during...

In this paper we apply the Contingent Claims Analysis (CCA) to the banking sector in Greece with a particular focus on the years of the Greek debt crisis. Greece was selected primarily because its banking sector was hit hard due to the country's government debt default and its large exposure to...

This paper studies the factors that were associated with a bank's early exit from TARP in 2009. Executive pay restrictions were often a rationale cited for early TARP exit, and high levels of CEO pay were associated with banks being significantly more likely to escape TARP. In addition, we find...

We tackle two questions in this paper: In the sovereign debt crisis, what moves the euro area inflation outlook and has the firm anchoring of medium to long-term inflation expectations been touched? Deriving densities from a new data set on options on the euro area harmonized index of consumer...