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Fri, 30 May 2014 10:54:25 +0200Fri, 30 May 2014 10:54:25 +0200Systemic risk in an interconnected banking system with endogenous asset
markets : [version 30 march 2014]
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/33829
This paper makes a conceptual contribution to the effect of monetary policy on financial stability. We develop a microfounded network model with endogenous network formation to analyze the impact of central banks' monetary policy interventions on systemic risk. Banks choose their portfolio, including their borrowing and lending decisions on the interbank market, to maximize profit subject to regulatory constraints in an asset-liability framework. Systemic risk arises in the form of multiple bank defaults driven by common shock exposure on asset markets, direct contagion via the interbank market, and firesale spirals. The central bank injects or withdraws liquidity on the interbank markets to achieve its desired interest rate target. A tension arises between the beneficial effects of stabilized interest rates and increased loan volume and the detrimental effects of higher risk taking incentives. We find that central bank supply of liquidity quite generally increases systemic risk.Marcel Bluhm; Jan Pieter Krahnenworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/33829Fri, 30 May 2014 10:54:25 +0200Monetary policy implementation in an interbank network: effects on systemic risk : [version 26 march 2014]
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/33827
This paper makes a conceptual contribution to the effect of monetary policy on financial stability. We develop a microfounded network model with endogenous network formation to analyze the impact of central banks' monetary policy interventions on systemic risk. Banks choose their portfolio, including their borrowing and lending decisions on the interbank market, to maximize profit subject to regulatory constraints in an asset-liability framework. Systemic risk arises in the form of multiple bank defaults driven by common shock exposure on asset markets, direct contagion via the interbank market, and firesale spirals. The central bank injects or withdraws liquidity on the interbank markets to achieve its desired interest rate target. A tension arises between the beneficial effects of stabilized interest rates and increased loan volume and the detrimental effects of higher risk taking incentives. We find that central bank supply of liquidity quite generally increases systemic risk.Marcel Bluhm; Ester Faia; Jan Pieter Krahnenworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/33827Fri, 30 May 2014 10:41:12 +0200Financial network systemic risk contributions
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32497
We propose the realized systemic risk beta as a measure for financial companies’ contribution to systemic risk given network interdependence between firms’ tail risk exposures. Conditional on statistically pre-identified network spillover effects and market as well as balance sheet information, we define the realized systemic risk beta as the total time-varying marginal effect of a firm’s Value-at-risk (VaR) on the system’s VaR. Statistical inference reveals a multitude of relevant risk spillover channels and determines companies’ systemic importance in the U.S. financial system. Our approach can be used to monitor companies’ systemic importance allowing for a transparent macroprudential supervision.Nikolaus Hautsch; Julia Schaumburg; Melanie Schienleworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32497Mon, 16 Dec 2013 09:12:18 +0100When do jumps matter for portfolio optimization? : [Version 29 April 2013]
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/30569
We consider the continuous-time portfolio optimization problem of an investor with constant relative risk aversion who maximizes expected utility of terminal wealth. The risky asset follows a jump-diffusion model with a diffusion state variable. We propose an approximation method that replaces the jumps by a diffusion and solve the resulting problem analytically. Furthermore, we provide explicit bounds on the true optimal strategy and the relative wealth equivalent loss that do not rely on results from the true model. We apply our method to a calibrated affine model and fine that relative wealth equivalent losses are below 1.16% if the jump size is stochastic and below 1% if the jump size is constant and γ ≥ 5. We perform robustness checks for various levels of risk-aversion, expected jump size, and jump intensity.Marius Ascheberg; Nicole Branger; Holger Kraftworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/30569Thu, 27 Jun 2013 15:56:06 +0200