We model the interaction between two economies where banks exhibit both adverse selection and moral hazard and bank regulators try to resolve these problems. We find that liberalising bank capital flows between economies reduces total welfare by reducing the average size and efficiency of the...

Deposit insurance schemes are becoming increasingly popular around the world and yet there is little understanding of how they should be designed and what their consequences are. In this paper we provide a new rationale for the provision of deposit insurance. We analyse a model in which agents...

In this paper we show how to calculate European-style option prices when the log-stock and stock returns processes follow a symmetric Levy-Stable process. We extend our results to price European-style options when the log-stock process follows a skewed Levy-Stable process.

In this paper we present an asymptotic analysis of an American call option where the diffusion term (volatility) is small compared to the drift terms (interest rate and continuous dividend yield). We show that in the limit where diffusion is negligible, relative to drift, then, at leading order,...

Debating the minutiae of insurance regulation without a clear understanding of why insurance companies are regulated is futile. In this non-technical essay I discuss the economic rationale for insurance business regulation. I conclude that the appropriate role of the regulator in this industry...

Consider a semimartingale of the form Y_{t}=Y_0+\int _0^{t}a_{s}ds+\int _0^{t}_{s-} dW_{s}, where a is a locally bounded predictable process and (the "volatility") is an adapted right--continuous process with left limits and W is a Brownian motion. We define the realised bipower variation...

This paper models limit order books where each trader is uncertain of the underlying distribution in the asset's value to others. If this uncertainty is rapidly resolved, fleeting limit orders are submitted and quickly cancelled. This enhances liquidity supply, but leaves intact established...

This paper explores the business cycle implications of financial distress and bankruptcy law. We find that due to the presence of financial imperfections the effect of liquidations on the price of capital goods can generate endogenous fluctuations. We show that a law reform that...

Until 1970, the New York Stock Exchange prohibited public incorporation of member firms. After the rules were relaxed to allow joint stock firm membership, investment-banking concerns organized as partnerships or closely-held private corporations went public in waves, with Goldman Sachs (1999)...

In this note we show that the feasible central limit theory for realised volatility and realised covariation recently developed by Barndorff-Nielsen and Shephard applies under arbitrary diffusion based leverage effects. Results from a simulation experiment suggest that the feasible version of...