This paper presents empirical evidence that the corporate bond market is forward looking with respect to volatility. I use the Merton (1974) model to calculate a measure of implied volatility from corporate bond yield spreads. I find that corporate bond transaction prices contain substantial...

This paper presents an event-study methodology that combines market data and survey-based probabilities to infer the full effect of a policy decision, as seen through the lens of financial markets. The market reaction to an event's outcome reflects its surprise or announcement effect, and...

Market participants use leveraged derivatives to gain access to equity market exposure through broker banks. Leverage and interconnectedness via overlapping portfolios of dealer banks can amplify adverse market movements, potentially causing sizeable losses. I propose a model, based on granular...

Most studies focusing on the determinants of loss given default (LGD) have largely ignored possible lagged effects of the macroeconomy on LGD. We fill this gap by employing a wide set of macroeconomic covariates on a retail portfolio that represents 15% of the Czech consumer credit market over...

Protection buyers use derivatives to share risk with protection sellers, whose assets are only imperfectly pledgeable because of moral hazard. To mitigate moral hazard, privately optimal derivative contracts involve variation margins. When margins are called, protection sellers must liquidate...

Yield curves built from liquid instruments tend to exhibit specific features, both in term of smoothness and in term of patterns. The paper presents empirical evidence that those liquid yiled curves frequently conform to a specific functional form. This specific functional form is predicted by a...

The present paper focuses on three questions: (i) Are heavy tails a relevant feature of the distribution of BUND futures returns? (ii) Is the tail behaviour constant over time? (iii) If it is not, can we use the tail index as an indicator for financial market risk and does it add value in...

In this paper we study risk-neutral densities (RNDs) for the German stock market. The use of option prices allows us to quantify the risk-neutral probabilities of various levels of the DAX index. For the period from December 1995 to November 2001, we implement the mixture of log-normals model...

This paper uses data on German government bond futures options to examine the behaviour of market expectations around monetary policy actions of the European Central Bank (ECB). In particular, this paper focuses on the asymmetries in bond market expectations, as measured by the skewness of...