This paper surveys the rapidly growing literature about interconnectedness and financial stability. The paper focuses on insights in the literature on the relationship between network structure and the vulnerability of the financial system to contagion

We develop a model of investor information choices and asset prices where the availability of information about fundamentals is time-varying. A competitive research sector produces more information when more investors are willing to pay for that research. This feedback, from investor willingness...

Counterparty risk measurement integrates two sources of risk: market risk, which determines the size of a firm's exposure to a counter party, and credit risk, which reflects the likelihood that the counterparty will default on its obligations. Wrong-way risk refers to the possibility that a...

Interconnections among financial institutions create potential channels for contagion and amplification of shocks to the financial system. We estimate the extent to which interconnections increase expected losses, with minimal information about network topology, under a wide range of shock...

This paper approaches risk management from three perspectives: firm-level risk measurement, governance and incentives, and systemic concerns. These are three essential dimensions of best practices in risk management; although we discuss each dimension separately, they are interrelated. The paper...

A credit valuation adjustment (CVA) is an adjustment applied to the value of a derivative contract or a portfolio of derivatives to account for counterparty credit risk. Measuring CVA requires combining models of market and credit risk to estimate a counterparty's risk of default together with...

The reform program for the over-the-counter (OTC) derivatives market launched by the G-20 nations in 2009 seeks to reduce systemic risk from OTC derivatives. The reforms require that standardized OTC derivatives be cleared through central counterparties (CCPs), and they set higher capital and...

The reform program for the over-the-counter (OTC) derivatives market launched by the G-20 nations in 2009 seeks to reduce systemic risk from OTC derivatives. The reforms require that standardized OTC derivatives be cleared through central counterparties (CCPs), and they set higher capital and...

We consider the problem of decomposing the credit risk in a portfolio into a sum of risk contributions associated with individual obligors or transactions. For some standard measures of risk - including value-at-risk and expected shortfall - the total risk can be usefully decomposed into a sum...

We derive an explicit representation of the transitions of the Heston stochastic volatility model and use it for fast and accurate simulation of the model. Of particular interest is the integral of the variance process over an interval, conditional on the level of the variance at the endpoints....