We study the motivations of traders in the interbank market around the 2007-09 subprime crisis. We develop a new methodology that reveals the underlying urgency to borrow overnight funds, which we call Trading Urgency. We find that the dispersion of beliefs (market Sidedness) and Trading Urgency...

Network analysis has become a key framework in financial economics in understanding how interconnectedness among market participants results in spillovers, amplifies or absorbs shocks, and creates other nonlinear effects that ultimately impact market health. In this paper, we propose a new...

We build a new asset pricing framework to study the effects of aggregate illiquidity on asset prices, volatilities and correlations. The Black-Scholes economy is obtained in our framework as the limiting case of perfectly liquid markets. The model is consistent with empirical studies on the...

We study the behavior of the interbank market before, during and after the 2008 financial crisis. Leveraging recent advances in network analysis, we study two network structures, a correlation network based on publicly traded bank returns, and a physical network based on interbank lending...

We study how banks manage their default risk to optimally negotiate quantities and prices of contracts in over-the-counter markets. We show that costly actions exerted by banks to reduce their default probabilities are inefficient. Negative externalities due to counterparty concentration may...

Beginning in the 1990s, the growth of mortgage lending was associated with the growth of a new set of mortgage-backed securities. We study the evolution of initial mortgage rates as a function of characteristics of both the loan and the borrower. We find that credit risk historically was priced...

We apply network analysis to trace patterns of information transmission in an electronic limit order market. If market orders or large executable limit orders are submitted by informed traders, then resulting star-shaped or diamond-shaped patterns ndash; or trading networks ndash; should be...

This Note describes how risks arising from climate change may affect financial stability. We describe how climate-change related risks may emerge either as shocks to the financial system or as financial system vulnerabilities that could amplify the effects of these or other shocks