Regulatory changes are transforming the multi-trillion dollar swaps market from a network of bilateral contracts to one in which swaps are cleared through central counterparties (CCPs). The stability of the new framework depends on the resilience of CCPs. Margin requirements are a CCP's first...

Stress testing, which has its roots in risk management, should be adapted to support financial stability monitoring and to incorporate the interconnections and dynamics of the financial system. Since the 2008 financial crisis, bank supervisors have honed their financial stability monitoring...

Contingent capital in the form of debt that converts to equity as a bank approaches financial distress offers a potential solution to the problem of banks that are too big to fail. This paper studies the design of contingent convertible bonds and their incentive effects in a structural model...

Contingent convertibles (CoCos) and bail-in debt for banks have been proposed as potential mechanisms to enhance financial stability. They function by converting to equity when a bank approaches insolvency. We develop a capital structure model to analyze the incentives created by these forms of...

Banking regulations set minimum levels of capital for banks. These requirements are generally formulated through a ratio of capital to risk-weighted assets. A risk-weighting scheme assigns a weight to each asset or category of assets and effectively functions as a linear constraint on a bank's...

Affine jump-diffusion (AJD) processes constitute a large and widely used class of continuous-time asset pricing models that balance tractability and flexibility in matching market data. The prices of e.g., bonds, options, and other assets in AJD models are given by extended pricing transforms...

Many of the most widely used models in finance fall within the affine family of diffusion processes. The affine family combines modeling flexibility with substantial tractability, particularly through transform analysis; these models are used both for econometric modeling and for pricing and...

This paper develops formulas for pricing caps and swaptions in LIBOR market models with jumps. The arbitrage-free dynamics of this class of models were characterized in Glasserman and Kou (1999) in a framework allowing for very general jump processes. For computational purposes, it is convenient...

This paper characterizes the arbitrage-free dynamics of interest rates, in the presence of both jumps and diffusion, when the term structure is modeled through simple forward rates (i.e., through discretely compounded forward rates evolving continuously in time) or forward swap rates. Whereas...