I show how funding costs to derivatives dealers' shareholders for carrying and hedging inventory affect mid-market derivatives prices. An implication is that some supposed "no-arbitrage" pricing relationships, such as put-call parity, frequently break down. I also explore the implications for...

We analyze the term structure of Treasury liquidity premium (LP). Through a model where illiquidity shocks can be alleviated by holding money and Treasuries, we show that the LP term structure is determined by (i) expectation of future liquidity conditions, (ii) liquidity term premium, (iii)...

We examine the properties of a method for fixing Libor rates that is based on transactions data and multi-day sampling windows. The use of a sampling window may mitigate problems caused by thin transaction volumes in unsecured wholesale term funding markets. Using two partial data sets of loan...

We outline key steps necessary to reform the London Interbank Offered Rate (LIBOR) so as to improve its robustness to manipulation. We first discuss the role of financial benchmarks such as LIBOR in promoting over-the-counter market efficiency by improving transparency. We then describe how to...