Dynamic Interaction Between Asset Prices and Bank Behavior: A Systemic Risk Perspective
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking system and credit risk from their lending in the interbank market. By and large, both risks increase during severe financial turmoil. Under this scenario, the paper shows the conditions under which both the individual and the systemic default tend to coincide.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Does Bankruptcy Protection Affect Asset Prices? Evidence from changes in Homestead Exemptions
Does the ability to protect an asset from unsecured creditors affect its price? This paper identifies the impact of bankruptcy protection on house prices using 139 changes in homestead exemptions. Large increases in the …
Expressions of Market-Based Correlations Between Prices and Returns of Two Assets
This paper derives the expressions of correlations between prices of two assets, returns of two assets, and price-return correlations of two assets that depend on statistical moments and correlations of the current value…
Price mediated contagion through capital ratio requirements with VWAP liquidation prices
We develop a framework for price-mediated contagion in financial systems where banks are forced to liquidate assets to satisfy a risk-weight based capital adequacy requirement. In constructing this modeling framework, we…
Market Efficient Portfolios in a Systemic Economy
We study the ex-ante minimization of market inefficiency, defined in terms of minimum deviation of market prices from fundamental values, from a centralized planner's perspective. Prices are pressured from exogenous trad…
Accounting Noise and the Pricing of CoCos
Contingent Convertible bonds (CoCos) are debt instruments that convert into equity or are written down in times of distress. Existing pricing models assume conversion triggers based on market prices and on the assumption…