We investigate the effects of margining, a widely-used mechanism to attach collateral to derivatives contracts, on derivatives' trading volume, default risk, and on the welfare in the banking sector. First, we develop a stylized banking sector equilibrium model to derive a set of testable...

This paper reviews methods that can be used to value illiquid investments, with a particular focus on private equity and real estate. We discuss the traditional valuation methods, in particular the net present value (NPV) rule, and show in what circumstances these can lead to suboptimal...

We develop a conceptual framework to understand the incentive structure and pricing mechanisms of Sustainability-Linked-Bonds (SLBs). The model allows us to characterize the conditions under which an SLB is incentive compatible for a firm. We further derive a novel measure which identifies the...

How do wealth managers understand and comply with the social norms embedded in banks’ codes of conduct (CoC) and how do they cope with ethical dilemmas? Do they have a tendency post Global Financial Crisis to prioritize banks’ financial security over clients’ interests? To answer these and...

This article analyzes the effect of liquidity risk on the performance of equity hedge fund portfolios. Similarly to Avramov, Kosowski, Naik, and Teo, we observe that, before accounting for the effect of liquidity risk, hedge fund portfolios that incorporate predictability in managerial skills...

It is well known that shareholders in levered firms select more risky projects. Yet, Black and Scholes-Merton option pricing framework cannot explain these shareholders adverse risk incentives. Indeed, if they behave strategically they should always select infinite volatility projects. We...