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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
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Foreign Reserve Management and U.S. Money Market Liquidity : A Cost of Exorbitant Privilege
Alquist, Ron; Kahn, R. Jay; Dilts Stedman, Karlye - 2022
significant changes in U.S. money market liquidity. We develop a model in which U.S. money market spreads respond to foreign … central banks’ exchange-rate management decisions. Foreign central banks remove liquidity from U.S. money markets and cause … spreads to widen by selling Treasuries to supply liquidity to their financial systems. Our analysis focuses on the major oil …
Persistent link: https://www.econbiz.de/10013492068
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Explaining asset pricing puzzles associated with the 1987 market crash
Benzoni, Luca; Collin-Dufresne, Pierre; Goldstein, Robert S. - 2010
The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for equity index options, despite minimal changes in aggregate consumption. We explain these events within a general equilibrium framework in which expected endowment growth and economic...
Persistent link: https://www.econbiz.de/10010292171
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The pricing of correlated default risk: evidence from the credit derivatives market
Zhu, Haibin; Tarashev, Nikola A. - 2008
In order to analyze the pricing of portfolio credit risk – as revealed by tranche spreads of a popular credit default swap (CDS) index – we extract risk-neutral probabilities of default (PDs) and physical asset return correlations from single-name CDS spreads. The time profile and overall...
Persistent link: https://www.econbiz.de/10010295946
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The information content of implied volatilities and model-free volatility expectations: Evidence from options written on individual stocks
Taylor, Stephen J.; Yadav, Pradeep K.; Zhang, Yuanyuan - 2009
The volatility information content of stock options for individual firms is measured using option prices for 149 U.S. firms and the S&P 100 index. ARCH and regression models are used to compare volatility forecasts defined by historical stock returns, at-the-money implied volatilities and...
Persistent link: https://www.econbiz.de/10010302536
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Leverage and Feedback Effects on Multifactor Wishart Stochastic Volatility for Option Pricing
Asai, Manabu; McAleer, Michael - 2013
The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) diffusion process which accommodates leverage, feedback effects and multifactor for the covariance process. The paper gives the closed-form solution for the conditional and unconditional Laplace transform...
Persistent link: https://www.econbiz.de/10010326219
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Estimating Implied Recovery Rates from the Term Structure of CDS Spreads
Jaskowski, Marcin; McAleer, Michael - 2013
Credit risk models should reflect the observation that the relevant value of collateral is generally not the average value of the asset over all possible states of nature. In most cases, the relevant value of collateral for the lender is its secondary market value in bad states of nature, where...
Persistent link: https://www.econbiz.de/10010326422
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Is the corporate bond market forward looking?
Hilscher, Jens - 2007
This paper presents empirical evidence that the corporate bond market is forward looking with respect to volatility. I use the Merton (1974) model to calculate a measure of implied volatility from corporate bond yield spreads. I find that corporate bond transaction prices contain substantial...
Persistent link: https://www.econbiz.de/10011604846
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Imperfect predictability and mutual fund dynamics. How managers use predictors in changing systematic risk.
Amisano, Gianni; Savona, Roberto - 2008
Suppose a fund manager uses predictors in changing port-folio allocations over time. How does predictability translate into portfolio decisions? To answer this question we derive a new model within the Bayesian framework, where managers are assumed to modulate the systematic risk in part by...
Persistent link: https://www.econbiz.de/10011604927
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How has CDO market pricing changed during the turmoil? Evidence from CDS index tranches
Scheicher, Martin - 2008
-based measures of credit risk, liquidity risk and interest rate risk. In this context, I analyse how the set of explanatory factors … repriced CDX contracts to a larger extent than iTraxx contracts. Credit risk and liquidity factors are priced in almost all … tranches with liquidity risk playing a larger role since the start of the turmoil. …
Persistent link: https://www.econbiz.de/10011604956