Hedge funds, with assets under management approaching an estimated $1.5 trillion in 2006, have become important players in the U.S. and global capital markets. These largely unregulated funds differ from other market participants in their use of a variety of complex trading strategies and...

This paper examines how risk in trading activity can affect the volatility of asset prices. We look for this relationship in the behavior of interest rate swap spreads and in the volume and interest rates of repurchase contracts. Specifically, we focus on convergence trading, in which...

The institutional arrangements for trading and settling securities in Europe remain fragmented along national lines, making cross-border trading costly. Consolidation efforts are under way, however, and major market centers have now emerged in France, Germany, and the United Kingdom. Although...

This article evaluates supervisory approaches to the measurement and capital treatment of the price risk of options positions. The authors find that approximate value-at-risk rules tend to provide better estimates of potential losses than simple strategy-based rules. The value-at-risk rules are...

This paper presents three proposals intended to enhance liquidity in the market for U.S. Treasury debt: making principal and interest STRIPS maturing on a common date fungible with each other, aligning the maturity of 2-year debt with either bill maturities or the maturities of longer-term debt,...