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Systemic risk and the refinancing ratchet effect

Khandani, Amir E.; Lo, Andrew W.; Merton, Robert C. - 2009 - This draft: September 13, 2009

The confluence of three trends in the U.S. residential housing market - rising home prices, declining interest rates, and near-frictionless refinancing opportunities - led to vastly increased systemic risk in the financial system. Individually, each of these trends is benign, but when they occur...

Persistent link: https://www.econbiz.de/10003889053

Identifying speculative demand shocks in commodity futures markets through changes in volatility

Hachula, Michael; Rieth, Malte - 2017

This paper studies the effects of financial speculation on commodity futures returns, using publicly available data from the US Commodity Futures Trading Commission, aggregated by trader groups. We exploit the heteroskedasticity in the weekly data to identify exogenous variation in speculators'...

Persistent link: https://www.econbiz.de/10011619592

A simple method for extracting the probability of default from American put option prices

Chang, Bo Young; Orosi, Greg - 2020 - Last updated: April 20, 2020

In this paper, we present a novel method to extract the risk-neutral probability of default of a firm from American put option prices. Building on the idea of a default corridor proposed in Carr and Wu (2011), we derive a parsimonious closed-form formula for American put option prices from which...

Persistent link: https://www.econbiz.de/10012216226

Default dependence : the equity default relationship

Turnbull, Stuart M. (contributor); Yang, Jun (contributor) - 2008

The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier. With cross-firm CDS premia and equity information, we are able to estimate and compare...

Persistent link: https://www.econbiz.de/10003641322

Liquidity Timing in Commodity Markets and the Impact of Financialization

Neuhierl, Andreas - 2016

correlate positively to calendar spread liquidity and constraints on intermediation capital. The strategy delivers low … risk. This rebalancing creates predictable demand for liquidity. We also apply the strategy to a group of commodities not …

Persistent link: https://www.econbiz.de/10013003136

Liquidity and Market Efficiency in the World’s Largest Carbon Market

Ibikunle, Gbenga - 2016

-horizon return predictability as an inverse indicator of market efficiency. We find a strong relationship between liquidity and … trading carbon futures and during periods of low liquidity. Since the start of trading in Phase II of the EU Emissions Trading …

Persistent link: https://www.econbiz.de/10013008319

Liquidity Shocks, Commodity Financialization, and Market Comovements

Hu, Conghui - 2020

composite liquidity index and five different types of liquidity measures. We find that liquidity shocks, including both funding …We explore whether and how liquidity factors influence risk transfers between commodity and stock markets using a … liquidity and market liquidity, are positively associated with comovements between commodity and stock markets after 2000 …

Persistent link: https://www.econbiz.de/10012833327

Equity option-implied probability of default and equity recovery rate

Chang, Bo Young; Orosi, Greg - 2016

There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability. We introduce a simple...

Persistent link: https://www.econbiz.de/10011571821

Liquidation, Leverage and Optimal Margin in Bitcoin Futures Markets

Cheng, Zhiyong; Deng, Jun; Wang, Tianyi; Yu, Mei - 2021

Using the generalized extreme value theory to characterize tail distributions, we address liqui- dation, leverage, and optimal margins for bitcoin long and short futures positions. The empirical analysis of perpetual bitcoin futures on BitMEX shows that (1) daily forced liquidations to out-...

Persistent link: https://www.econbiz.de/10013241565

Mispricing of S&P 500 index options

Constantinides, George M.; Jackwerth, Jens Carsten; … - 2005

We document widespread violations of stochastic dominance in the one-month S&P 500 index options market over the period 1986-2002. These violations imply that a trader can improve her expected utility by engaging in a zero-net-cost trade. We allow the market to be incomplete and also imperfect...

Persistent link: https://www.econbiz.de/10010266937

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