infonet-economy

We study loan conditions when bank branches close and firms subsequently transfer to a branch of another bank in the vicinity. Such transfer loans allow us for the first time to observe the conditions granted when banks pool-price new applicants. Consistent with recent theoretical work on hold up in bank-firm relationships we find that transfer loans do not receive the discount in…

The values of options on realized variance are significantly impacted by the discrete sampling of realized variance and may be substantially higher than the values of options on continuously sampled variance (or, quadratic variation). Under arbitrary stochastic volatility dynamics, we analyze the discretization effect and obtain a simple analytical correction term to be applied to…

Central bank collateral frameworks are an often overlooked feature of monetary policy that play a key role in the monetary and financial system. Readers will discover how central banks conduct and implement monetary policy beyond merely setting interest rates, and develop their understanding as to how collateral policies may affect financial markets, financial stability, and the real…

In this paper the solutions to several variants of the so-called dividend-distribution problem in a multi-dimensional, diffusion setting are studied. In a nutshell, the manager of a firm must balance the retention of earnings (so as to ward off bankruptcy and earn interest) and the distribution of dividends (so as to please the shareholders). A dynamic-programming approach is used,…

We present results from the first large-scale international survey on time preference, conducted in 53 countries. All countries exhibit hyperbolic discounting patterns, i.e., the immediate future is discounted more than far future. We also observe higher heterogeneity for shorter time horizons, consistent with the pattern reviewed by Frederick, Loewenstein, and O’Donoghue (2002).…

The purpose of this paper is to dispel some common misunderstandings about capital adequacy rules based on Expected Shortfall. We establish that, from a theoretical perspective, Expected Shortfall based regulation can provide a misleading assessment of tail behavior, does not necessarily protect liability holders’ interests much better than Value-at-Risk based regulation, and may…

The creation and protection of financial wealth is one of the most important roles of modern societies. People will commit to working hard and saving for future generations only if they can be sure that the efforts they exert every day will be rewarded by a better standard of living. This, however, can only be achieved with a well-functioning financial market. Unfortunately, a…