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Diversification through pooling and tranching securities was supposed to mitigate creditor runs in financial institutions by reducing their credit risk, yet many financial institutions holding diversified portfolios experienced creditor runs in the recent financial crisis of 2007-2009. We...
Persistent link: https://www.econbiz.de/10012898888
The value of information is examined in a risk-sharing environment with unawareness and complete markets. Information and awareness are symmetric among agents, who have a clear understanding of their actions and deterministic payoffs. We show with examples that public information can make some...
Persistent link: https://www.econbiz.de/10014116604
We examine the effects of estimation risk and Bayesian learning on equilibrium asset prices when there is uncertainty about both the first and second moments of consumption and dividend growth rates. For the 1891-2007 period, our model generates a sizable average annual equity premium,...
Persistent link: https://www.econbiz.de/10013130393
We examine the impact of risk-based portfolio constraints on asset prices in an exchange economy. Constrained agents scale down their portfolio and behave locally like power utility investors with risk aversion that depends on current market conditions. The imposition of constraints dampens...
Persistent link: https://www.econbiz.de/10013132941
Financial volatility risk is addressed through a multiple round evolutionary quantum game equilibrium leading to Multifractal Self-Organized Criticality (MSOC) in the financial returns and in the risk dynamics. The model is simulated and the results are compared with financial volatility data
Persistent link: https://www.econbiz.de/10013122513
We study asset-pricing implications of innovation in a general-equilibrium overlapping- generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of...
Persistent link: https://www.econbiz.de/10013067614
This paper proposes a pure-exchange economy with three key ingredients: habit formation, stochastic moments of aggregate consumption, and a small degree of heterogeneity in risk aversion consistent with empirical data. We obtain closed formulas for many equilibrium quantities, including the...
Persistent link: https://www.econbiz.de/10013068369
We examine the effects of parameter uncertainty and Bayesian learning on equilibrium asset prices when all the structural parameters of the aggregate consumption and dividend growth rate processes are unknown. With realistic calibration of a parsimonious set of prior parameters, the model...
Persistent link: https://www.econbiz.de/10013150931
This paper investigates the reputational risk measurement in banking using a simple model that integrates random effects and Logit models. The pricing theory is outlined to include risk determinant factors as well as negative news for banks. The environment under which the quantitative model is...
Persistent link: https://www.econbiz.de/10012968986
Climate risks are now fully recognized as financial risks by asset managers, investors, central banks, and financial supervisors. Against this background, a rapidly growing number of market participants and financial authorities are exploring which metrics to use to capture climate risks, as...
Persistent link: https://www.econbiz.de/10012662168