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Systemic Risk (systemic + risk)
Selected AbstractsBanking and Currency Crisis and Systemic Risk: A Taxonomy and ReviewFINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 2 2000George G. Kaufman First page of article [source] The Contributions of Professors Fischer Black, Robert Merton and Myron Scholes to the Financial Services IndustryINTERNATIONAL REVIEW OF FINANCE, Issue 4 2000Terry Marsh This paper is written as a tribute to Professors Robert Merton and Myron Scholes, winners of the 1997 Nobel Prize in economics, as well as to their collaborator, the late Professor Fischer Black. We first provide a brief and very selective review of their seminal work in contingent claims pricing. We then provide an overview of some of the recent research on stock price dynamics as it relates to contingent claim pricing. The continuing intensity of this research, some 25 years after the publication of the original Black,Scholes paper, must surely be regarded as the ultimate tribute to their work. We discuss jump-diffusion and stochastic volatility models, subordinated models, fractal models and generalized binomial tree models for stock price dynamics and option pricing. We also address questions as to whether derivatives trading poses a systemic risk in the context of models in which stock price movements are endogenized, and give our views on the ,LTCM crisis' and liquidity risk. [source] The Squam Lake Report: Fixing the Financial System,JOURNAL OF APPLIED CORPORATE FINANCE, Issue 3 2010Kenneth French In these excerpts from The Squam Lake Report, fifteen distinguished economists analyze where the global financial system failed, and how such failures might be prevented (or at least their damage better contained) in the future. Although there were many contributing factors to the crisis,including "agency" problems throughout the financial system and a bankruptcy code poorly suited for reorganizing financial firms,at the core of the problem is a potential conflict between the risk-taking proclivity of financial institutions and the interests of the economy at large that must be managed at least in part through more effective regulation. The Squam Lake Report provides a nonpartisan plan to transform the regulation of financial markets in ways designed to limit systemic risk while preserving,to the extent possible and prudent,the economies of scale and scope that justify the existence of today's large financial institutions. To reduce the risks that large banks will fail, the authors call for higher capital requirements based on more effective assessments of the risks of bank assets and liabilities, as well as a new systemic regulator that should be part of the central bank. To reduce the costs of failure when it occurs, the authors propose that banks be required to create "living wills" laying out their plan to sell assets or shut down operations in the event of financial trouble. As part of that plan, regulators are urged to "aggressively encourage" banks to issue "contingent" debt capital securities that convert into equity. [source] Geschäfts- und Risikopolitik von Hedgefonds im Vergleich zu anderen Finanzintermediären: Sind Hedgefonds besonders gefährlich?PERSPEKTIVEN DER WIRTSCHAFTSPOLITIK, Issue 3 2000Günter Franke Hedge funds are characterized by short-term investments in over- or undervalued financial instruments. Their policy is highly dynamic as opposed to the more long-term investments of mutual funds. On average, the risk taken by hedge funds appears to be higher than that taken by mutual funds, although quite risky mutual funds also exist. Banks sometimes take large default risks, as evidenced by various banking crises. Also banks trade heavily on the term structure of interest rates. Hence, in these respects it appears that banks take risks that are at least as high as hedge funds. In short-term proprietary trading, banks and hedge funds face similar challenges. Overall, hedge funds cannot be regarded as more dangerous than banks. Since hedge funds trade with professional investors and banks, there is little reason to protect these counterparties by special regulation. Moreover, most hedge funds are rather small players and do not seem to act in herds. Therefore, the probability of systemic risks created by hedge funds appears to be very low. As a consequence, market control of hedge funds supported by more transparency appears to be preferable to specific hedge fund regulation. [source] | ||||||||||