In this paper, we analyze the optimal asset composition ratio of stocks and bonds for a bank taking into consideration the correlation between the interest rate risk and equity risk in the financial capital market using a portfolio model. The analysis reveals that in determining the asset...

Stockholdings by Japan's banks have been a factor undermining their profits. Along with the holding of particular firms' stocks, banks have extended a large amount of loans to those firms. Banks would suffer losses on both loans and stocks if such firms defaulted. Moreover, banks have increased...

Over-the-counter (OTC) derivative transactions, like loans, present the risk of losses in the event that the counterparty goes bankrupt. This is referred to as counterparty risk. OTC derivatives differ from loans, however, in that exposure varies with market factors. The risk that both exposure...

Japanese life insurance companies hold a large amount of Japanese government bonds (JGBs) as long-term investments. Recently, their holdings of super-long-term JGBs have been increasing especially significantly, and the presence of life insurance companies in the super-long-term JGB market has...

Monetary policy shocks in the United States are considered a significant cause of economic fluctuations in other countries. We study empirically how the spillover effects of such shocks have changed as a result of the recent deepening of global integration. We consider shocks to the Federal...

As international ties have been strengthened on the real economic front, global correlation has been higher in the government bond and other financial markets. Under the circumstances, Japanese banks' market risk associated with holdings of Japanese government bonds (JGBs) has been more...

In this paper, we develop a multiasset model of market liquidity and derive the optimal strategy for block order execution under both liquidity and volatility risk. The market liquidity flowing into and out of an order book is modeled as a mean-reverting stochastic process. Given the shape of...

This paper investigates market expectations of future equity prices using the probability distribution and the moments implied in equity option prices. We first conduct, without assuming a particular model, a nonparametric analysis of the development of market expectations in four major markets...

The financial activity index (FAIX) introduced in this paper is a selection of financial indicators that borrow from prior literature on early bubble warnings and are particularly adept at explaining the bubble occurred in Japan starting in the 1980s. Our index comprises 10 financial indicators...