Jean-Charles Rochet, Issues in capital adequacy, In: NIESR Annual Finance Conference: Financial Regulation: Are we reaching an efficient outcome? Organized by Bank of England, London. 2016. (Conference Presentation)
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Jean-Charles Rochet, Aggregate Bank Capital and Credit Dynamics, In: Fourth BIS Research Network meeting: Financial intermediation and macroeconomic stability. 2016. (Conference Presentation)
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Gergana Kinova, Impact of Quantitative Easing on US Bank Stock Prices, University of Zurich, Faculty of Business, Economics and Informatics, 2016. (Master's Thesis)
In 2008, the Federal Reserve responded decisively to the challenges posed by the fmancial crisis, reducing the federal funds rate dramatically to the zero lower bound
and introducing unconventional monetary policy measures - the Quantitative Easing (QE) program. This thesis aims to assess the impact of the Federal Open Market Committee announcements on the stock prices of US banks. In a first step, an event study is used to measure the cumulated abn9rm:al returns around the announcements over the period November 2008 - December 2014. As a second' step, a regression analysis is conducted in order to estimate the determinants of the cumulative abnormal returns. The results indicate that banks with a lower capital ratio were more sensitive to monetary policy announcements, Large banks, which experienced negative cumulative abnormal returns were less sensitive than smaller banks. The reason might be that the market expected QE to be transmitted mainly through large banks, generating income for them, which might have mitigated the potentially negative impact of the financial crisis on those banks.
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Jingyuan Tian, A Study on Wages in Chinese Financial Industry, University of Zurich, Faculty of Business, Economics and Informatics, 2016. (Master's Thesis)
This thesis studied rate of return to education in Chinese financial industry. Em ployees from financial industry indeed are better compensated, however, unlike most of the other developed countries, rate of return to education in Chinese finan cial industry does not surpass the rest of industries. Inside financial industry, the better one employee is educated, the more he/she get compensated. In the second party of this thesis, compensation for executives from financial companies is exam ined. Compensation increases with the size of the company and the intense super vision and regulation on financial market, meanwhile, it decreases with a higher degree of concentration of stockholdings and debt ratio. Banking is different from other financial companies in his nature, executives from Banking are better com pensated when non-performing loan ratio increases....
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Erdinc Akyildirim, Albert Altarovici, Partial hedging and cash requirements in discrete time, Quantitative Finance, Vol. 16 (6), 2016. (Journal Article)
This paper develops a discrete time version of the continuous time model of Bouchard et al. [J. Control Optim., 2009, 48, 3123–3150], for the problem of finding the minimal initial data for a controlled process to guarantee reaching a controlled target with probability one. An efficient numerical algorithm, based on dynamic programming, is proposed for the quantile hedging of standard call and put options, exotic options and quantile hedging with portfolio constraints. The method is then extended to solve utility indifference pricing, good-deal bounds and expected shortfall problems. |
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Ahmet Göncü, Erdinc Akyildirim, A stochastic model for commodity pairs trading, Quantitative Finance, Vol. 16 (12), 2016. (Journal Article)
In this study, we introduce an optimal pairs trading model and verify its performance in the commodity futures markets. Empirical evidence from commodity futures indicates the existence of significant mean reversion together with high peak and fat tails for the distribution of spread residuals. Therefore, we assume an Ornstein–Uhlenbeck process with the noise term driven by a Lévy process with generalized hyperbolic distributed marginals. Our model not only provides trading signals, but also can be considered as a pair screening technique to rank all potential pairs for trade priority in terms of the distance to the expected profit-maximizing thresholds. Empirical examples and backtesting results obtained from commodity futures data show strong support for the profitability of the model even in the presence of transaction costs. |
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Shen Mengning, Impact of Interest Rate Liberalization on the Operation of Chinese Banks, University of Zurich, Faculty of Business, Economics and Informatics, 2016. (Master's Thesis)
Interest rate liberalization means that the market decides the interest rate. The US scholars Mckinnon and Shaw believed that interest rate should float freely according to the supply-demand in the market and government should abandon all the intervention and control over interest rate. However Stiglitz thought that the interest rate liberalization should under proper control from government.
Almost all the developed countries and most developing countries have completed the interest rate liberalization reform. From their experiences, the liberalization did release the press on the interest rate and increase the saving rate, which resulted in the economic development. However, there were also countries that the interest rate liberalization did not achieve the expectation but caused the financial crisis on the contrary.
In China, the interest rate is long under strict control and the interest rate liberalization will make banks losing their most important reliance. There are 13 banks taken as research objects in the thesis and study how the interest rate liberalization will influence the operation of banks in China.
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Jukka Isohätälä, Nataliya Klimenko, Alistair Milne, Post-crisis macrofinancial modeling: continuous time approaches, In: The Handbook of Post Crisis Financial Modeling, Palgrave Macmillan UK, London, p. 235 - 282, 2016. (Book Chapter)
Prior to the crisis the dominant paradigm in macroeconomic modeling was the micro-founded "New-Keynesian" DSGE model (described in many textbooks including the influential exposition of Woodford (2003)). In its most basic form this combines price-stickiness with forward looking decision making by both households and firms. This provides a tractable framework for capturing the response of output and inflation to both demand and supply shocks and explaining intuitively the transmission of monetary policy (with monetary policy characterized as a choice over rules for current and future interest rates). |
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Nataliya Klimenko, Santiago Moreno-Bromberg, The shadow costs of repos and bank liability structure, Journal of Economic Dynamics and Control, Vol. 65, 2016. (Journal Article)
Making use of a structural model that allows for optimal liquidity management, we study the role that repos play in a bank׳s financing structure. In our model the bank׳s assets consist of illiquid loans and liquid reserves and are financed by a combination of repos, long-term debt, deposits and equity. Repos are a cheap source of funding, but they are subject to an exogenous rollover risk. We show that the use of repos inflicts two types of indirect (“shadow”) costs on the bank׳s shareholders: first, it induces the bank to maintain higher liquid reserves in order to alleviate the additional default risk; second, it adds to the cost of long-term debt financing. These shadow costs limit the bank׳s appetite for cheap but unstable repo funding. This effect is, however, weakened under poor returns on risky assets, access to deposit funding and the depositor preference rule. We also analyze the impact of a liquidity coverage ratio, payout restrictions and a leverage ratio on the bank׳s financing choices and show that all these tools are able to curb the bank׳s reliance on repos. |
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Andrea Barth, Santiago Moreno-Bromberg, Oleg Reichmann, A non-stationary model of dividend distribution in a stochastic interest-rate setting, Computational Economics, Vol. 47 (3), 2016. (Journal Article)
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, where the state variables are the current levels of cash reserves and of the stochastic short-rate, as well as time. This results in a family of Hamilton–Jacobi–Bellman variational inequalities whose solutions must be approximated numerically. To do so, a finite element approximation and a time-marching scheme are employed. |
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Dominique Henriet, Nataliya Klimenko, Jean-Charles Rochet, The dynamics of insurance prices, The Geneva Risk and Insurance Review, Vol. 41 (1), 2016. (Journal Article)
We develop a continuous-time general-equilibrium model to rationalise the dynamics of insurance prices in a competitive insurance market with financial frictions. Insurance companies choose underwriting and financing policies to maximise shareholder value. The equilibrium price dynamics are explicit, which allows simple numerical simulations and generates testable implications. In particular, we find that the equilibrium price of insurance is (weakly) predictable and the insurance sector always realises positive expected profits. Moreover, rather than true cycles, insurance prices exhibit asymmetric reversals caused by the reflection of the aggregate capacity process at the dividend and recapitalisation boundaries. |
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Jean-Charles Rochet, A Wider View, In: SUERF Conference: Cash on Trial . 2015. (Conference Presentation)
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Thi Quynh Anh Vo, Liquidity Management in Banking: What is the Role of Leverage?, In: Swiss Finance Institute Research Paper, No. 15-51, 2015. (Working Paper)
This paper examines potential impacts of banks' leverage on their incentives to manage their liquidity. We analyze a model where banks control their liquidity risk by managing their liquid asset positions. In the basic framework, a model with a single bank, where the possibility of selling long-term assets when in need of liquidity is not taken into account, we find that the bank chooses to prudently manage its liquidity risk only when its leverage is low. In a model with multiple banks and a secondary market for long-term assets, we find that a banking system where banks are highly leveraged can be prone to liquidity crises. Our model predicts a typical pattern of liquidity crises that is consistent with what was observed during the 2007-2009 crisis. |
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Silvio Noser, Effects of Regulation on Structured Products in Switzerland, University of Zurich, Faculty of Business, Economics and Informatics, 2015. (Master's Thesis)
This paper analyses a large number of structured products issued in Switzerland and the current accompanying regulatory framework. Furthermore, the planned legislative changes are outlined and analysed. The paper analyses several factors and their effect on the yearly premium of structured products. A proposed future regulation, which is in accordance with the one from the European Union, may have a negative effect on the overpricing of structured products which is about 1.5% per year in Switzerland. The reason for this is the new regulation that is more complicated and demands a more detailed prospectus. Additionally, the prospectus needs to be checked by the regulator before the product is issued. These regulatory changes may lead to a further increase of the costs of structured products which the customer has to pay. |
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Jean-Charles Rochet, The New Regulatory Framework and Systemic Risk , In: Conference BdF - ACPR Financial Regulation - Stability versus Uniformity: A focus on non-bank actors, with Jean Tirole. 2015. (Conference Presentation)
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Jean-Charles Rochet, On the Origins of Insurance Cycles, In: Conference in honor of Hervé Moulin organized by GREQAM (Groupement de Recherche on Economie Quantitative d'Aix-Marseille). 2015. (Conference Presentation)
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Jean-Charles Rochet, Bank Capital and Aggregate Lending, In: TSE conference in honour of Jean Tirole Nobel Prize in Economics 2014. 2015. (Conference Presentation)
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Li Zhang, How does capital requirement affect bank lending behavior?, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2015. (Master's Thesis)
This thesis studies the impact of capital requirement on bank lending behavior. Banks with
high leverage tend to take excessive risk, and government guarantees induce banks to over lever and
take on more risks. Capital regulation is considered an attractive instrument to mitigate banks’
risk-shifting incentives. The broadly used regulatory policy is the capital requirement introduced
by the Basel Committee. Over time, the requirement is kept revised, and increased to a higher level
after the recent financial crisis. However, higher capital requirement may adversely affect bank
lending, and impede the economic growth. Analyzing how does capital requirement affect bank lending
behavior can bring about some implications for the further policy design. Two academic papers are
presented to analyze the impact of capital requirement on bank lending behaviors. Even though the
two papers provide a consistent view that higher capital requirement reduces the bank loan supply,
there is still a lack of consensus on how best to design capital requirement standards.
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Michael Magill, Martine Quinzii, Jean-Charles Rochet, A Theory of the Stakeholder Corporation, Econometrica, Vol. 83 (5), 2015. (Journal Article)
There is a widely held view within the general public that large corporations should act in the interests of a broader group of agents than just their shareholders (the stake- holder view). This paper presents a framework where this idea can be justified. The point of departure is the observation that a large firm typically faces endogenous risks that may have a significant impact on the workers it employs and the consumers it serves. These risks generate externalities on these stakeholders which are not inter- nalized by shareholders. As a result, in the competitive equilibrium, there is under- investment in the prevention of these risks. We suggest that this under-investment problem can be alleviated if firms are instructed to maximize the total welfare of their stakeholders rather than shareholder value alone (stakeholder equilibrium). The stake- holder equilibrium can be implemented by introducing new property rights
(employee rights and consumer rights) and instructing managers to maximize the total value of the firm (the value of these rights plus shareholder value). If there is only one firm, the stakeholder equilibrium is Pareto optimal. However, this is not true with more than one firm and/or heterogeneous agents, which illustrates some of the limits of the stake- holder model. |
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Jean-Charles Rochet, 27th Geneva Risk Economics Lecture, In: 3rd World Risk and Insurance Economics Congress Munich 2015 hosted by Munich Risk and Insurance Center . 2015. (Conference Presentation)
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