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Author: Douglas Darrell Evanoff Publisher: World Scientific ISBN: 981428047X Category : Business & Economics Languages : en Pages : 404
Book Description
Since the summer of 2007, credit markets in almost all industrial countries have been in substantial turmoil and this has become the focus of intense policy debates. The papers in this volume are contributed by the world's leading financial experts and constitute a thorough examination of the first credit market turmoil of the 21st Century. They provide an overview of the main causes, transmission mechanisms and economic implications of what by now has become a major systemic financial crisis. They assess the most important policy considerations and conclude about how to stabilize financial systems, attenuate repercussions on the real economy and shape future regulatory structures. The analyses, conclusions, and recommendations can be expected to influence both public and private policies to mitigate, if not prevent, such crises in the future.
Author: Douglas Darrell Evanoff Publisher: World Scientific ISBN: 981428047X Category : Business & Economics Languages : en Pages : 404
Book Description
Since the summer of 2007, credit markets in almost all industrial countries have been in substantial turmoil and this has become the focus of intense policy debates. The papers in this volume are contributed by the world's leading financial experts and constitute a thorough examination of the first credit market turmoil of the 21st Century. They provide an overview of the main causes, transmission mechanisms and economic implications of what by now has become a major systemic financial crisis. They assess the most important policy considerations and conclude about how to stabilize financial systems, attenuate repercussions on the real economy and shape future regulatory structures. The analyses, conclusions, and recommendations can be expected to influence both public and private policies to mitigate, if not prevent, such crises in the future.
Author: Miriam Marra Publisher: ISBN: Category : Languages : en Pages :
Book Description
In the light of the events of the recent financial crisis and of the increased importance of liquidity for the functionality of firms and financial markets, this thesis studies how a lack of liquidity (illiquidity) can affect the prices of credit derivatives and how illiquidity can propagate across credit and equity markets. The thesis incorporates three self-contained research papers. The first paper (Chapter 2) examines the effect of liquidity on the pricing of senior structured and unstructured credit indices (Senior Tranche of CDX.NA.IG Index and AAA Corporate Bond Index) over the period 2006-2009. The paper reveals that for both instruments the credit spreads align over time with the returns and the volatility of the equity market and with interest rates, as suggested by the structural model theory (Merton, 1974). However, it also shows that during the subprime crisis the highly-rated tranche of the CDX.NA.IG Index suffered from a substantial discount due to the lack of depth in the relevant markets, the scarcity of risk-capital, and the high liquidity preference exhibited by investors. By contrast, market liquidity and funding liquidity are found to be less significant in explaining the increase in the spread of the AAA Bond Index. The second paper (Chapter 3) investigates the existence of illiquidity commonality across equity and credit markets and the potential channels that can explain this phenomenon. Illiquidity appears to co-move across equities and credit default swaps in particular over crisis periods. For most firms, illiquidity is transmitted from one market (CDS) to the other (equity). Higher funding costs, market volatility and firms' systematic risk cause the equity-CDS illiquidity commonality to increase. However, the illiquidity commonality is also strongly related to the debt-to-equity hedge ratio which captures the arbitrage linkage between equity and CDSs. The paper shows that the illiquidity contagion across two fundamentally-linked assets can be generated by higher demand of liquidity for hedging and speculative trading. The third paper (Chapter 4) studies possible explanations for the credit spread puzzle. First, the paper shows that the credit spread puzzle can be partially explained by investors' aversion to a firm's extreme losses. The paper implements a novel calibration of the Merton (1974) model to a measure of sensitivity of CDS premia to equity volatility (which captures changes in the fat left tail of the firm's risk-neutral distribution). The predicted CDS premia are higher than those obtained using more traditional calibration methodologies, but still lower than those observed in the market. Therefore, the paper turns to studying the effects of investors' ambiguity aversion and CDS market illiquidity on CDS premia. The results show that when a market is illiquid and uncertainty is greater, sellers of credit default swaps charge more and CDS premia increase.
Author: Thierry Foucault Publisher: Oxford University Press ISBN: 0197542069 Category : Capital market Languages : en Pages : 531
Book Description
"The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--
Author: Mr.Jorge Roldos Publisher: International Monetary Fund ISBN: 1451922779 Category : Business & Economics Languages : en Pages : 26
Book Description
In this paper we explore some of the informational problems that constrain the development of credit markets in transition economies. We characterize investment patterns under uncertainty and high costs of entry, when agents learn about the ultimate value of enterprises through production in a Bayesian way. Inefficiencies due to the lack of public information reduce the average return to capital. Under asymmetric information, credit would go to activities that can provide enough co-finance. Credit markets may fail to develop for a while if there is not enough individual wealth to complement credit. Once they operate, credit markets may magnify distortions in equity markets, such as those due to spontaneous privatization. An argument for the sequencing of capital market liberalization is provided.
Author: Richard Bruyere Publisher: John Wiley & Sons ISBN: 0470026235 Category : Business & Economics Languages : en Pages : 294
Book Description
Over the past decade, credit derivatives have emerged as the key financial innovation in global capital markets. At end 2004, the market size hit $6.4 billion (in notional amounts) from virtually nothing in 1995. This rise has been spurred by the imperative for banks to better manage their risks, not least credit risks, and the appetite shown by institutional investors and hedge funds for innovative, high yielding structured investment products. As a result, growth in collateralized debt obligations and other second-generation products, such as credit indices, is currently phenomenal. It is enabled by the standardization and increased liquidity in credit default swaps – the building block of the credit derivatives market. Written by market practitioners and specialists, this book covers the fundamentals of the credit derivatives and structured credit market, including in-depth product descriptions, analysis of real transactions, market overview, pricing models, banks business models. It is recommended reading for students in business schools and financial courses, academics, and professionals working in investment and asset management, banking, corporate treasury and the capital markets. Highlights include: Written by market practitioners and specialists with first-hand experience in the credit derivatives and structured credit market A clearly-written, pedagogical book with numerous illustrations Detailed review of real-case transactions A comprehensive historical perspective on market developments including up-to-date analysis of the latest trends
Author: Mr.Jose De Gregorio Publisher: International Monetary Fund ISBN: 1451959087 Category : Business & Economics Languages : en Pages : 22
Book Description
This paper studies the effects that the inability of individuals to borrow against future income has on economic growth. The model assumes that human capital, which is accumulated through education, is the only factor of production. It is shown that liquidity constraints reduce growth. Further, in the presence of externalities that may induce two equilibria, it is shown that liquidity constraints not only reduce the rate of growth in the high-growth equilibrium, but can also make the low-growth equilibrium more likely to occur.
Author: Darrell Duffie Publisher: Walter de Gruyter GmbH & Co KG ISBN: 3110673126 Category : Business & Economics Languages : en Pages : 152
Book Description
Post-crisis capital regulations and new failure-resolution rules increased the funding costs that are borne by bank shareholders, and thus the cost to buy-side firms for access to space on the balance sheets of large banks. A policy implication is the encouragement of market infrastructure and trading methods that reduce the amount of space on bank balance sheets that is needed to conduct a given amount of trade. Using models and evidence, this book addresses the implications for financial-market liquidity of these regulations for systemically important banks and argues that current rules do not allow for potential levels of market efficiency and financial stability. In this insightful analysis of the impact of regulation on financial market efficiency post-2008, the author argues that bank capital levels could actually be pushed higher while still improving the liquidity of markets for safe assets such as low-risk fixed-income instruments by relaxing the leverage-ratio rule and increasing risk-based capital requirements.
Author: John B. Caouette Publisher: John Wiley & Sons ISBN: 9780471111894 Category : Business & Economics Languages : en Pages : 476
Book Description
The first full analysis of the latest advances in managing credit risk. "Against a backdrop of radical industry evolution, the authors of Managing Credit Risk: The Next Great Financial Challenge provide a concise and practical overview of these dramatic market and technical developments in a book which is destined to become a standard reference in the field." -Thomas C. Wilson, Partner, McKinsey & Company, Inc. "Managing Credit Risk is an outstanding intellectual achievement. The authors have provided investors a comprehensive view of the state of credit analysis at the end of the millennium." -Martin S. Fridson, Financial Analysts Journal. "This book provides a comprehensive review of credit risk management that should be compulsory reading for not only those who are responsible for such risk but also for financial analysts and investors. An important addition to a significant but neglected subject." -B.J. Ranson, Senior Vice-President, Portfolio Management, Bank of Montreal. The phenomenal growth of the credit markets has spawned a powerful array of new instruments for managing credit risk, but until now there has been no single source of information and commentary on them. In Managing Credit Risk, three highly regarded professionals in the field have-for the first time-gathered state-of-the-art information on the tools, techniques, and vehicles available today for managing credit risk. Throughout the book they emphasize the actual practice of managing credit risk, and draw on the experience of leading experts who have successfully implemented credit risk solutions. Starting with a lucid analysis of recent sweeping changes in the U.S. and global financial markets, this comprehensive resource documents the credit explosion and its remarkable opportunities-as well as its potentially devastating dangers. Analyzing the problems that have occurred during its growth period-S&L failures, business failures, bond and loan defaults, derivatives debacles-and the solutions that have enabled the credit market to continue expanding, Managing Credit Risk examines the major players and institutional settings for credit risk, including banks, insurance companies, pension funds, exchanges, clearinghouses, and rating agencies. By carefully delineating the different perspectives of each of these groups with respect to credit risk, this unique resource offers a comprehensive guide to the rapidly changing marketplace for credit products. Managing Credit Risk describes all the major credit risk management tools with regard to their strengths and weaknesses, their fitness to specific financial situations, and their effectiveness. The instruments covered in each of these detailed sections include: credit risk models based on accounting data and market values; models based on stock price; consumer finance models; models for small business; models for real estate, emerging market corporations, and financial institutions; country risk models; and more. There is an important analysis of default results on corporate bonds and loans, and credit rating migration. In all cases, the authors emphasize that success will go to those firms that employ the right tools and create the right kind of risk culture within their organizations. A strong concluding chapter integrates emerging trends in the financial markets with the new methods in the context of the overall credit environment. Concise, authoritative, and lucidly written, Managing Credit Risk is essential reading for bankers, regulators, and financial market professionals who face the great new challenges-and promising rewards-of credit risk management.
Author: Abdourahmane Sarr Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 72
Book Description
This paper provides an overview of indicators that can be used to illustrate and analyze liquidity developments in financial markets. The measures include bid-ask spreads, turnover ratios, and price impact measures. They gauge different aspects of market liquidity, namely tightness (costs), immediacy, depth, breadth, and resiliency. These measures are applied in selected foreign exchange, money, and capital markets to illustrate their operational usefulness. A number of measures must be considered because there is no single theoretically correct and universally accepted measure to determine a market's degree of liquidity and because market-specific factors and peculiarities must be considered.
Author: Douglas Darrell Evanoff
Author: Douglas Darrell Evanoff
Author: Miriam Marra
Author: Thierry Foucault
Author: Yakov Amihud
Author: Mr.Jorge Roldos
Author: Richard Bruyere
Author: Mr.Jose De Gregorio
Author: Darrell Duffie
Author: John B. Caouette
Author: Abdourahmane Sarr