While the traditional view of financial innovation emphasizes the risk sharing role of new financial assets, belief …. This paper investigates the effect of financial innovation on portfolio risks in an economy when both the risk sharing and … the possibilities for risk sharing. My main result shows that financial innovation also always increases the speculative …

By exploiting basic common practice accounting and risk management rules, we propose a simple analytical dynamical … mark-to-market and risk management rules. We provide a full analytical quantification of the multivariate feedback effects … of financial institutions and, thereby, the availability of bank liquidity to the economic system and systemic risk. The …

conditions under which individual default is propagated endogenously into a collective risk of widespread default in general …