We review heterogeneous agent-based models of financial stability and their application in stress tests. In contrast to the mainstream approach, which relies heavily on the rational expectations assumption and focuses on situations where it is possible to compute an equilibrium, this approach...

Interconnectedness among insurers and reinsurers at a global level is not well understood and may pose a significant risk to the sector, with implications for the macroeconomy. Models of the complex interactions among reinsurers and with other participants in the financial system and the real...

For globally systemically important banks (G-SIBs) with U.S. headquarters, we find large post-Lehman reductions in market-implied probabilities of government bailout, along with big increases in debt financing costs for these banks after controlling for insolvency risk. The data are consistent...

We measure credit risk premia---prices for bearing corporate default risk in excess of expected default losses---using Markit CDS and Moody's Analytics EDF data. We find dramatic variation over time in credit risk premia, with peaks in 2002, during the global financial crisis of 2008-09, and in...

Libor derivative pricing has changed with the crisis; Libor is no longer one unambiguous curve as a large basis has appeared between different Libor tenors. A previous approach to derivative discounting is reviewed in the light of those changes. The valuation of so-called linear derivatives, the...

Libor derivative pricing has changed with the crisis; Libor is not anymore one unambiguous curve as a large basis has appeared between different Libor tenors. A previous approach to derivative discounting is reviewed at the light of those changes. The valuation of so called linear derivatives,...

Using a range of stochastic volatility models well-known in the nance literature, we study the existence of money market bubbles in the US economy. Money market bubbles preclude the existence of a risk-neutral pricing measure. Understanding whether markets exhibit money market bubbles is crucial...

This paper analyzes the insurability of pandemic risk and outlines how underwriting policies and scenario analysis are used to build resilience upfront and plan contingency actions for crisis scenarios. It then summarizes the unique “lessons learned” from the Covid-19 crisis by baselining...

This paper examines banks' disclosures and loss recognition in the financial crisis and identifies several core issues for the link between accounting and financial stability. Our analysis suggests that, going into the financial crisis, banks' disclosures about relevant risk exposures were...

This paper examines banks' disclosures and loss recognition in the financial crisis and identifies several core issues for the link between accounting and financial stability. Our analysis suggests that, going into the financial crisis, banks' disclosures about relevant risk exposures were...