The banking system is modeled in a closed system of financial accounts, whereby the equilibrium volume of bank intermediation between households and corporates reflects structural parameters such as household preferences, comparative cost structures of heterogeneous banks, loan demand of...

Containing short-term volatility of the overnight interest rate is normally considered the main objective of central bank standing facilities. This paper develops a simple stochastic model to show how the width of the central bank standing facilities corridor affects banks’ day-to-day...

After the Lehman default, but also during the euro area sovereign debt crisis, central banks have tended to extend the ability of banks to take recourse to central bank credit operations through changes of the collateral framework (e.g. CGFS, 2008 - in consistence with previous narratives, such...

The paper attempts to investigate the influence of the 1988 Basel Accord on bank behavior and monetary policy. It is argued that the Accord was successful in that it forced commercial banks in all of G-10 countries to maintain higher capital ratios. Tentative research suggests, however, that –...

We suggest that the term structure of VIX futures shows a clear pattern of dependence on the current level of VIX index. At the low levels of VIX (below 20), the term structure is highly upward sloping, while at the high VIX levels (over 30) it is strongly downward sloping. We use these features...

We suggest that the term structure of volatility futures (e.g. VIX futures) shows a clear pattern of dependence on the current level of VIX index. At the low level of VIX (below 20) the term structure is highly upward sloping; at the high VIX level (over 30) it is strongly downward sloping. We...

The article presents a simple parameterization of the volatility surface for options on the S&P 500 volatility index, VIX. Specifically, we document the following features of VIX implied volatility: (i) VIX at-the-money (ATM) implied volatility correlates strongly with the volatility skew in S&P...

This paper investigates the changes in the investment portfolio performance after including VIX. We apply different models for optimal portfolio selection (Markowitz and Black-Litterman) assuming both the possibility of short sale and the lack of it. We also use various assets, data frequencies,...

Central bank lending to commercial banks is typically collateralized which reduces central bank’s credit risk exposure to “double default events” when the counterparty and the issuer of the underlying collateral asset both default in a short period of time. This paper presents a simple...

The adjustment speed of delta hedged options exposure depends on the market realized and implied volatility. We observe that by consistently hedging long and short positions in options we can eventually end up with pure exposure to volatility without any options in the portfolio at all. The...