Contributions published at Department of Banking and Finance (Pablo Koch Medina)

null

null

Anche se la Svizzera si vanta volentieri di essere un modello di democrazia, né il Parlamento né il popolo hanno avuto voce in capitolo nel salvataggio di Credit Suisse. "Si tratta di un diniego della democrazia", affermano la giornalista economica Myret Zaki e l'economista Marc Chesney nel nostro dibattito.

TEDx Talk on Climate Finance and AI, May 13, 2023 in Paris

We provide evidence that banks increase cross-border lending in response to higher climate policy stringency in their home countries. Saturating with granular set of fixed effects and including a rich set of control variables, we show that the increase in cross-border lending is not driven by loan demand and/or other bank home country characteristics. In line with banks use cross-border lending as a regulatory arbitrage tool, the increase in cross-border lending occurs only if banks' home countries have more stringent climate policy compared to their borrowers' countries. The effect is stronger for large, lowly capitalized banks with high NPL ratios and for banks with more experience in cross-border lending. Our results suggest that without a global cooperation, cross-border lending can be a channel that reduces the effectiveness of climate policies.

This study employs novel text-based proxies to analyze corporate exposure to regulatory risks in the low-carbon transition. In response to the Russia-Ukraine war, stocks with higher transition risk outperformed, suggesting an expected slowdown in the transition. These effects were far more pronounced in the US than Europe, where renewable energy policy support was anticipated. The US Inflation Reduction Act (IRA) and the REPowerEU plan increased the value of firms with renewable energy opportunities, but the IRA also benefited higher transition risk firms. Overall, the findings highlight an international divergence in the energy transition pace.

Die Zinssteigerungen schwächen vor allem Regionalbanken, die dann von den Grossbanken – grosszügig gepolstert von staatlichen Einrichtungen – geschluckt werden. In den USA wird dabei wie in der Schweiz geltendes Recht gebrochen.

We develop a generic and transparent calibration strategy for climate models used in economics. The key idea is to choose the free model parameters to match the output of large-scale Earth System Models, which are run on pre-defined future emissions scenarios and collected in the Coupled Model Intercomparison Project, Phase 5 (CMIP5). We propose to jointly use four different test cases that are considered pivotal in the climate science literature. Two of these tests are highly idealized to allow for the separate quantitative examination of the carbon cycle and the temperature response. Another two tests are closer to the scenarios that arise from economic models. They test the climate module as a whole, that is, they incorporate gradual changes in CO2 emissions, exogenous forcing, and ultimately the temperature response. To illustrate the applicability of our method, we re-calibrate the free parameters of the climate part of the seminal DICE-2016 model for three different CMIP5 model responses: the multi-model mean as well as two other CMIP5 models that exhibit extreme but still permissible equilibrium climate sensitivities. As an additional novelty, our calibrations of DICE-2016 allow for an arbitrary time step in the model explicitly. By applying our comprehensive suite of tests, we show that i) both the temperature equations and the carbon cycle in DICE-2016 are miscalibrated and that ii) by re-calibrating their coefficients, we can match all CMIP5 targets we consider. Finally, we apply the economic model from DICE-2016 in combination with the newly calibrated climate model to compute the social cost of carbon and the optimal warming. We find that in our updated model, the social cost of carbon is similar to DICE-2016. However, the optimal long-run temperature in our calibration lies almost one degree below that obtained by DICE-2016. Moreover, the social cost of carbon turns out to be much less sensitive to the discount rate than in DICE-2016. We explain how the model's climate part relates to these differences and also show that under the optimal mitigation scenario, the temperature predictions of DICE-2016 (in contrast to our proposed calibration) fall outside of the CMIP5 scenarios, suggesting that one might want to be skeptical about policy predictions derived from DICE-2016.

Der Schweizer Finanzplatz rühmt sich gerne für seine Regulierungsqualität. Allerdings gibt es einige Länder, die es offenbar besser machen.

La direttiva CSRD impone alle imprese di stilare dei report di sostenibilità: si tratta di una norma facoltativa, ma secondo gli esperti tutti avranno l’interesse a farlo sia per ottenere finanziamenti dalle banche sia per evitare danni di reputazione con i consumatori. C’è, però, chi ancora non è pronto.

This paper presents a portfolio construction approach that combines the hierarchical clustering of a large asset universe with the stock price momentum. On the one hand, investing in high-momentum stocks stabilizes portfolio performance across economic regimes and enhances risk-adjusted returns. On the other hand, hierarchical clustering of a high-dimensional asset universe ensures sparse diversification and mitigates the problems of increased drawdowns and large turnovers typically present in momentum portfolios. Moreover, the proposed portfolio construction approach avoids the covariance matrix inversion. An out-of-sample backtest on a non-survivorship-biased dataset of international stocks shows that hierarchical-momentum portfolios achieve substantially improved cumulative and risk-adjusted portfolio returns as well as decreased portfolio drawdowns compared to the model-free benchmarks net of transaction costs. Furthermore, we demonstrate that the unique characteristics of the hierarchical-momentum portfolios arise due to both dimensionality reduction via clustering and momentum-based stock selection.

Marc Chesney, professor of mathematical science at the University of Zurich, has for years warned of toxic conditions within the banking system. He argues that a culture of high-stakes risk has spun out of control thanks to incentives that reward short-term profit with outsized bonuses. When things go wrong, bank executives walk away with their millions without having to face the music.

We combine Tyler's robust estimator of the dispersion matrix with nonlinear shrinkage. This approach delivers a simple and fast estimator of the dispersion matrix in elliptical models that is robust against both heavy tails and high dimensions. We prove convergence of the iterative part of our algorithm and demonstrate the favorable performance of the estimator in a wide range of simulation scenarios. Finally, an empirical application demonstrates its state-of-the-art performance on real data.

Given the competitiveness of a market-making environment, the ability to speedily quote option prices consistent with an ever-changing market environment is essential. Thus, the smallest acceleration or improvement over traditional pricing methods is crucial to avoid arbitrage. We propose a method for accelerating the pricing of American options to near-instantaneous using a feed-forward neural network. This neural network is trained over the chosen (e.g., Heston) stochastic volatility specification. Such an approach facilitates parameter interpretability, as generally required by the regulators, and establishes our method in the area of eXplainable Artificial Intelligence (XAI) for finance. We show that the proposed deep explainable pricer induces a speed-accuracy trade-off compared to the typical Monte Carlo or Partial Differential Equation-based pricing methods. Moreover, the proposed approach allows for pricing derivatives with path-dependent and more complex payoffs and is, given the sufficient accuracy of computation and its tractable nature, applicable in a market-making environment.

null

Si la Suisse se targue volontiers d’être un modèle de démocratie, ni le Parlement ni le peuple n’ont eu leur mot à dire dans le sauvetage de Credit Suisse. «Il s'agit d'un déni de démocratie», estiment la journaliste économique Myret Zaki et l’économiste Marc Chesney, dans notre débat filmé.

null

Ziel der vorliegenden Bachelorarbeit ist es, durch den Einsatz von Zitaten und Handlungen psychologischen Mechanismen der involvierten Parteien im Enron-Skandal erklären zu können. Die Methodik basierte auf einer umfassenden Suche nach Zitaten und Handlungen im Internet sowie auf der Dokumentation «The Smartest Guys in the Room». Die Ergebnisse zeigen deutlich, dass insbesondere die Führungskräfte des Unternehmens, Kenneth Lay, Andrew Fastow und Jeff Skilling einen erheblichen Anteil an den Ereignissen hatten. Folglich ist es von grosser Bedeutung, zukünftig verstärkt auf das Verhalten von Personen und gesetzlichen Regelungen zu achten, um ähnliche Skandale zu verhindern.

The Dog of the Dow strategy is the most famous approach to dividend investing, originally found in the American stock market in the 1990s. I analyse the Swiss market during the Covid-19 crisis to find evidence of this strategy’s success. In addition, I adapt the strategy by focusing on the difference between financial and non-financial institutions. Furthermore, I implement a dividend stability criterion and analyse the effect of different firm sizes. I find no general success of the DoD strategy in Switzerland when analyzing the whole investable market. However, I find positive effects for the dividend strategy when focusing on big firms and when implementing a dividend strategy. Furthermore, the effect of dividend policy differs between non-financial and financial firms. Although the results show the direction of the effects, I find no statistically significant outperformance of the Swiss market by the DoD strategies during Covid-19. I discuss the results in the face of the dividend restriction policy in the European and Swiss market and find that such interventions may lead to market instability.

null