Econometrics

Risk Sharing in Over the Counter Markets 2

Speaker: 
Darrel Duffie
Date: 
Wed, Jul 23, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 

These lecture notes are part of a series on "Risk Sharing in Over-the-Counter Markets"

Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Intermediary Leverage Cycles and Financial Stability

Author: 
Tobias Adrian
Date: 
Wed, Jul 30, 2014
Location: 
PIMS, University of British Columbia
Conference: 
PIMS Workshop on the Economics and Mathematics of Systemic Risk
Abstract: 

We present a theory of financial intermediary leverage cycles within a dynamic model of the macroeconomy. Intermediaries face risk-based funding constraints that give rise to procyclical leverage and a procyclical share of intermediated credit. The pricing of risk varies as a function of intermediary leverage, and asset return exposure to intermediary leverage shocks earns a positive risk premium. Relative to an economy with constant leverage, financial intermediaries generate higher consumption growth and lower consumption volatility in normal times, at the cost of endogenous systemic financial risk. The severity of systemic crisis depends on intermediaries’ leverage and net worth. Regulations that tighten funding constraints affect the systemic risk-return trade-off by lowering the likelihood of systemic crises at the cost of higher pricing of risk. (Joint work with Nina Boyarchenko - FRBNY)

Notes: 
PDF icon FinStab21Jul2014.pdf
Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Risk Sharing in Over-the-Counter Markets 1

Speaker: 
Darrel Duffie
Date: 
Wed, Jul 23, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 
I will begin with an overview of the purpose and structure of OTC markets, and how they can be a source of systemic risk.
This will be followed by a brief review of search-based theories of trade and information sharing in OTC markets. Then I will turn to theories and evidence regarding the use of collateral, the role of central clearing, and failure management. The failure management topic will finish with a model of the efficient application of legal stays that could be imposed on OTC contracts at the point of bankruptcy or administrative failure resolution. These stays can yield effective payment or settlement priority to OTC contracts. Stays can be efficient, or not efficient, depending on the setting. The affected OTC contracts include derivatives, repurchase agreements, securities lending agreements, and clearing agreements. I assume a basic knowledge of game theory and of measure-theoretic probability theory, particularly counting processes with an intensity.
Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Financial Stability 2

Speaker: 
Jean-Charles Rochet
Date: 
Tue, Jul 22, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 
Capital Regulation and Credit cycles: Rationale for solvency regulations: micro VS macro-prudential. Will Basel III be sufficient? Countercyclical Capital buffers
  • Admati et al.(2011) “Why bank capital is not expensive"
  • Gersbach and Rochet (2013) "Capital Regulation and Credit Fluctuations”.
Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Contingent Capital and FInancial Networks 2

Speaker: 
Paul Glasserman
Date: 
Tue, Jul 22, 2014 to Wed, Jul 23, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 

These lectures will cover two topics. The first is contingent capital in the form of debt that converts to equity when a bank 
nears financial distress. These instruments offer a potential solution to the problem of banks that are too big to fail by 
providing a credible alternative to a government bail-out. Their properties are, however, complex. I will discuss models for the analysis of contingent capital with particular emphasis on their incentive effects and the design of the conversion trigger. The second topic in these lectures is the problem of quantifying contagion and amplification in financial networks. In particular, I will focus on bounding the potential impact of network effects under the realistic condition that detailed information on the structure of the network is unavailable

Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Diffusion Models for Systemic Risk 3

Speaker: 
Jean-Pierre Fouque
Date: 
Tue, Jul 22, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 

We will present inter-bank borrowing and lending models based on systems of coupled diffusions. First-passage models will be reviewed and applied to mean-field type models in order to illustrate systemic events and compute their probability via large deviation theory. Then, a game feature will be introduced and Nash equilibria will be derived or approximated using the Mean Field Game approach.

Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Diffusion Models for Systemic Risk 2

Speaker: 
Jean-Pierre Fouque
Date: 
Tue, Jul 22, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 

We will present inter-bank borrowing and lending models based on systems of coupled diffusions. First-passage models will be reviewed and applied to mean-field type models in order to illustrate systemic events and compute their probability via large deviation theory. Then, a game feature will be introduced and Nash equilibria will be derived or approximated using the Mean Field Game approach.

Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Financial Stability 1

Speaker: 
Jean-Charles Rochet
Date: 
Mon, Jul 21, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 

The lender of last resort: An analysis of the economics and politics of banking crises, and episodes of bail-outs of
failing financial institutions.

  • Rochet Vives (2004) “The Lender of last Resort: was Bagehot right after all?” JEEA, 6, 1116-1147, reprinted in Rochet J.C. (2008) “Why are there so many banking crises?, Princeton University Press, chapter 2
Class: 
Scientific
Subject: 
Econometrics

Contingent Capital and Financial Networks 1

Speaker: 
Paul Glasserman
Date: 
Mon, Jul 21, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 

These lectures will cover two topics. The first is contingent capital in the form of debt that converts to equity when a bank 
nears financial distress. These instruments offer a potential solution to the problem of banks that are too big to fail by 
providing a credible alternative to a government bail-out. Their properties are, however, complex. I will discuss models for the analysis of contingent capital with particular emphasis on their incentive effects and the design of the conversion trigger. The second topic in these lectures is the problem of quantifying contagion and amplification in financial networks. In particular, I will focus on bounding the potential impact of network effects under the realistic condition that detailed information on the structure of the network is unavailable

Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Diffusion Models for Systemic Risk 1

Speaker: 
Jean-Pierre Fouque
Date: 
Mon, Jul 21, 2014
Location: 
PIMS, University of British Columbia
Conference: 
The Economics and Mathematics of Systemic Risk and Financial Networks
Abstract: 

We will present inter-bank borrowing and lending models based on systems of coupled diffusions. First-passage models will 
be reviewed and applied to mean-field type models in order to illustrate systemic events and compute their probability via 
large deviation theory. Then, a game feature will be introduced and Nash equilibria will be derived or approximated using the 
Mean Field Game approach.

Class: 
Scientific
Subject: 
Mathematics
Econometrics
Applied Mathematics

Pages