Using a range of stochastic volatility models well-known in the nance literature, we study the existence of money market bubbles in the US economy. Money market bubbles preclude the existence of a risk-neutral pricing measure. Understanding whether markets exhibit money market bubbles is crucial...

Libor derivative pricing has changed with the crisis; Libor is no longer one unambiguous curve as a large basis has appeared between different Libor tenors. A previous approach to derivative discounting is reviewed in the light of those changes. The valuation of so-called linear derivatives, the...

Libor derivative pricing has changed with the crisis; Libor is not anymore one unambiguous curve as a large basis has appeared between different Libor tenors. A previous approach to derivative discounting is reviewed at the light of those changes. The valuation of so called linear derivatives,...

We present a dynamic and quantitative model of a fiscal solvency crisis in a monetary union. Diverse fiscal policies, which are subject to fiscal limits and stochastic shocks, can threaten a monetary union. The fiscal limits arise due to distortionary taxation and political will. Stochastic...

This paper presents a comprehensive model of financial contagion encompassing both direct and indirect transmission channels. We introduce direct contagion through a 2-layered multiplex network to account for the distinct dynamics resulting from collateralized and uncollateralized transactions....

We propose a multi-period clearing framework, where the level of systemic risk is mitigated through provision of liquidity assistance. The interbank liability network evolves stochastically over time, and assets of defaulted banks are sold to qualified banks within the network through a first...

The paper reports the outcome of the stress-testing of liquidity risk in the TARGET2 payment system, with the study having been conducted by an ad-hoc group composed of operators and overseers of TARGET2. The study aims to assess the resilience of the system, defined as the network of its...

We develop a structural default model for interconnected financial institutions in a probabilistic framework. For all possible network structures we characterize the joint default distribution of the system using Bayesian network methodologies. Particular emphasis is given to the treatment and...

In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced by the history of the default events. We extend the...

In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced by the history of the default events. We extend the...