A key issue raised by the rapid growth of computerised algorithmic trading is how it responds in extreme situations. Using data on foreign exchange orders and transactions that includes identification of algorithmic trading, we find that this type of trading contributed to the deterioration of...

This paper analyses how the risk-sharing capacity of the financial system varies over the business cycle, leading to procyclical fragility. We show how financial imperfections contribute to underinsurance by entrepreneurs, generating an externality that leads to the build-up of systematic risk...

This paper proposes a new method for measuring investor 'risk appetite'. Like other indicators in the literature, it is based on a comparison of risk-neutral probabilities of future returns with the corresponding subjective probabilities. The precise nature of the comparison is novel, however,...

This paper proposes a method for measuring investor risk appetite based on the variation in the ratio of risk-neutral to subjective probabilities used by investors in evaluating possible future returns to an asset. Unlike other indicators advanced in the literature, our measure of market...

By the end of 2012, all standardised over-the-counter (OTC) derivatives must be cleared with central counterparties (CCPs). In this paper, we estimate the amount of collateral that CCPs should demand to clear safely all interest rate swap and credit default swap positions of the major...

From June 2011, the BIS credit derivatives statistics provide more granular information on the types of risks transferred through credit default swaps by different groups of counterparties. The new data suggest that reporting dealers have used some hard-to-value credit derivatives to transfer...

By the end of 2012, all standardised over-the-counter (OTC) derivatives will have to be cleared through central counterparties (CCPs). We estimate the financial resources that different CCPs would need to clear safely the full volume of interest rate swaps and credit default swaps currently held...