In accordance with Basel Capital Accords, the Capital Requirements (CR) for market risk exposure of banks is a nonlinear function of Value-at-Risk (VaR). Importantly, the CR is calculated based on a bank’s actual portfolio, i.e. the portfolio represented by its current holdings. To tackle...

In this paper, we study the drivers of permanent and transitory deposit dollarization for a sample of CESE countries using panel cointegration techniques. The results suggest that a positive cointegration relationship exists between permanent dollarization and Minimum Variance Portfolio (MVP)...

We develop a novel approach to the bond portfolio optimization in insurance companies that are subject to the new Solvency II regulation. The regulatory efficient portfolios are determined using the Non-dominated Sorting Genetic Algorithm II (NSGA-II). The characteristics of the estimated...

Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex-ante, i.e., before uncertainties are resolved, cash bonuses are valued ex-post, i.e., by discounting the realized cash grants. Such a lack of consistency can,...

We study financial markets in which both rational and overconfident agents coexist and make endogenous information acquisition decisions. We demonstrate the following irrelevance result: when a positive fraction of rational agents (endogenously) decides to become informed in equilibrium, prices...

We study a novel class of noisy rational expectations equilibria in markets with large number of agents. We show that, as long as noise (liquidity traders, endowment shocks) increases with the number of agents in the economy, the limiting competitive equilibrium is well-defined and leads to...

The objective of this paper is to provide a rational to the behavior of quot;large shareholdersquot; and their role in the different stages of the life of a corporation. In this paper I analyze dynamics of ownership stakes of risk-averse corporate insiders by constructing a multi-period,...

Our paper develops a theoretical framework for analyzing optimal loan interest rate contracts under conditions of risky, symmetric information. We obtain a series of closed form solutions for one-period (static) and multi-period (dynamic) optimal contracts. The optimal design for loan interest...

This paper studies the effects that benefits of control and moral hazard have on the evolution of large stakes in REITs. A large risk-averse shareholder trades off the net benefits of REIT business monitoring and control with the cost of bearing risk beyond the level compensated by the REIT...

We develop a new option-based method for the valuation of mortgage insurance contracts in closed form in an economy where agents are risk neutral. While the proposed valuation method is general and can be used in any market, it may be particularly useful in emerging market economies where other...