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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

The time dimension of the links between loss given default and the macroeconomy

Koneèný, Tomáš; Seidler, Jakub; Belyaeva, Aelita; … - 2017

Most studies focusing on the determinants of loss given default (LGD) have largely ignored possible lagged effects of the macroeconomy on LGD. We fill this gap by employing a wide set of macroeconomic covariates on a retail portfolio that represents 15% of the Czech consumer credit market over...

Persistent link: https://www.econbiz.de/10011636239

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

Illiquidity transmission from spot to futures markets

Korn, Olaf; Krischak, Paolo; Theissen, Erik - 2017 - [vers. 08/2017]

but, rather, interacts with price risk, liquidity risk, and the risk aversion of the market maker. The model's predictions … support our model and show that the derivative hedge theory provides an explanation for the liquidity link between spot and …

Persistent link: https://www.econbiz.de/10011713434

Discrete-time option pricing with stochastic liquidity

Leippold, Markus; Schärer, Steven - 2016

Classical option pricing theories are usually built on the law of one price, neglecting the impact of market liquidity … liquidity model, extending the discrete-time constant liquidity model of Madan (2010). With this extension, we can replicate the … stochastic liquidity model within our framework using multidimensional binomial trees and we calibrate it to call and put options …

Persistent link: https://www.econbiz.de/10011515968

Trader positions and marketwide liquidity demand

Onur, Esen; Roberts, John S.; Tuzun, Tugkan - 2017

changes carries important information about liquidity demand in the market. From this distribution of trader position …-changes, we construct a marketwide measure for intraday liquidity demand that does not necessarily depend on aggressive trading …. Using a rich regulatory dataset on S&P 500 E-mini futures and 10-year Treasury futures markets, we show that this liquidity …

Persistent link: https://www.econbiz.de/10011803199

Systemic default and return predictability in the stock and bond markets

Bao, Jack; Hou, Kewei; Zhang, Shaojun - 2016

Using a structural model of default, we construct a measure of systemic default defined as the probability that many firms default at the same time. We account for correlations in defaults between firms through exposures to common shocks. The systemic default measure spikes during recession...

Persistent link: https://www.econbiz.de/10011810905

Modeling default dependence with threshold models

Overbeck, Ludger; Schmidt, Wolfgang M. - 2003

We investigate the problem of modeling defaults of dependent credits. In the framework of the class of structural default models we study threshold models where for each credit the underling ability-to-pay process is a transformation of a Wiener processes. We propose a model for dependent...

Persistent link: https://www.econbiz.de/10003853455

Giesecke, Kay - 2001

We propose a model of correlated multi-firm default with incomplete information. While public bond investors observe issuers' assets and defaults, we suppose that they are not informed about the threshold asset level at which a firm is liquidated. Bond investors form instead a prior on these...

Persistent link: https://www.econbiz.de/10009621426

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