The paper presents a theory of optimal transparency when financial institutions are exposed to rollover risk. Transparency enhances the stability of the financial system during crises but has destabilizing effects in normal economic times. Thus, the regulator optimally increases transparency...

In a standard principal-agent setting, we use a comparative approach to study the incentives provided by different types of compensation contracts, and their valuation by managers with utility function u who are risk averse (u'' < 0) and prudent (u''' > 0). We show that concave contracts tend to provide more incentives...</0)>

We present a theory of optimal transparency when banks are exposed to rollover risk. Disclosing bank-specific information enhances the stability of the financial system during crises, but has a destabilizing effect in normal economic times. Thus, the regulator optimally increases transparency...

I introduce social feasibility constraints in the standard SIR epidemiological model: at any point in time, the feasibility of implementing mitigation measures by a social planner is limited, but it increases when the infection rate is higher. When considering threshold policies with constant...

We describe a new type of bank liability, reverse convertible bonds, that help prevent bank runs that lead to bank failures (ex-post), and inefficient risk-taking (ex-ante). These bonds are short-term debt that automatically convert into equity following a missed debt repayment. They can be...

We propose a new methodology to identify non-compliance with FASB guidance with respect to the dividend yield and the volatility rate for stock option valuation disclosures. The FASB gives firms some flexibility in choosing these parameters. Accordingly, we take into account a number of...

The price of any asset can be expressed with risk neutral probabilities, which are adjusted to incorporate risk preferences. This paper introduces the concepts of downside (respectively outer) risk neutral probabilities, which are adjusted to incorporate the preferences for downside (resp....

We show that there exists a probability measure under which the CAPM formula for expected returns holds for general utility functions and probability distributions. This probability measure, the ``downside risk neutral'' measure, is adjusted to incorporate the effects of downside risk and higher...

Holmström (1979) provides a condition for a signal to have positive value assuming the validity of the first-order approach. This paper extends Holmström's analysis to settings where the first-order approach may not hold. We provide a new condition for a signal to have positive value that...

In a standard principal-agent model, we derive a new condition that relates the structure of the optimal contract to the agent's risk preferences: The optimal contract is more convex than the likelihood ratio of the performance measure if and only if the coefficient of absolute prudence is...