Banks usually hold large amounts of domestic public debt which makes them vulnerable to their own sovereign's default risk. At the same time, governments often resort to costly public bailouts when their domestic banking sector is in trouble. We investigate how the interbank network structure...

We model the decision problem faced by a profit-maximizing clearinghouse, which sets fee and margin requirements for heterogeneous traders who may default. We capture the main tradeoffs underpinning the clearinghouse's choices: higher fee and better default protection come at the cost of...

We introduce an equity-credit portfolio framework taking into account the structural interaction of market and credit risk, along with their systemic dependencies. We derive a closed-form expression for the optimal investment strategy in stocks and credit default swaps (CDSs). We exploit its...

The U.S. Treasury market is highly intermediated by nonbank principal trading firms (PTFs). Limited capital forces PTFs to end the trading day roughly flat. We construct a continuous time market making model to analyze the trade-off faced by a profit-maximizing firm with overnight inventory...

The U.S. Treasury market is highly intermediated by non-bank principal trading firms (PTFs). Limited capital forces PTFs to end the trading day nearly flat. We construct a continuous time market making model to analyze the trade-off faced by a profit maximizing firm with overnight inventory...