Systemic risk propagated through over-the-counter derivatives can best be managed by a public-private central counterparty clearing house (CCP). Though private CCPs provide an adequate amount of clearing's private good, they do not provide the socially optimal level of the public good or impure...

Managed synthetic CDOs permit the dynamic substitution of credits in the reference portfolio. The expectation of investors in is that a skilled manager should be able to identify deteriorating credits before they experience a credit event and should therefore be able to remove the credit from...

Regulations impose idiosyncratic capital and funding costs for holding derivatives. Capital requirements are costly because derivatives desks are risky businesses; funding is costly in part because regulations increase the minimum funding tenor. Idiosyncratic costs mean no single measure makes...

This article provides an in-depth analysis of pricing and structuring of contingent convertibles (CoCos). These debt instruments convert into the equity of the issuing bank or suffer a write-down of the face value upon the appearance of a trigger event. This trigger mechanism provides an...

This paper discusses market manipulation schemes on option expiration dates. We show that under ordinary circumstances, writers, but not holders, would have an incentive to manipulate the expiration of standard options, but both are incentivized to manipulate cash-settled options. Using our...