We propose a simple non-equilibrium model of a financial market as an open system with a possible exchange of money with an outside world and market frictions (trade impacts) incorporated into asset price dynamics via a feedback mechanism. Using a linear market impact model, this produces a...

An investor with constant relative risk aversion trades a safe and several risky assets with constant investment opportunities. For a small fixed transaction cost, levied on each trade regardless of its size, we explicitly determine the leading-order corrections to the frictionless value...

We discuss risk measures representing the minimum amount of capital a financial institution needs to raise and invest in a pre-specified eligible asset to ensure it is adequately capitalized. Most of the literature has focused on cash-additive risk measures, for which the eligible asset is a...

This paper studies a two-person trading game in continuous time that generalizes Garivaltis (2018) to allow for stock prices that both jump and diffuse. Analogous to Bell and Cover (1988) in discrete time, the players start by choosing fair randomizations of the initial dollar, by exchanging it...

We study changes in deposit and cash holdings by households following the 2013 banking crisis in Cyprus. During this crisis the two largest banks in the country were resolved involving a bail-in of uninsured depositors and debt holders. Our analysis is based on anonymized survey data covering...

This paper surveys the literature on sovereign debt from the perspective of understanding how sovereign debt differs from privately issue debt, and why sovereign debt is deemed safe in some countries but risky in others. The answers relate to the unique power of the sovereign. One the one hand,...

Adaptive Asset Allocation builds on Harry Markowitz’s 1952 Modern Portfolio Theory by providing greater risk management to traditional static allocation models. By adjusting risk exposures within the portfolio in response to the macroeconomic environment, investors can reduce exposure to...

The cyclic development of economy (from upturn to downturn) influences the important macroeconomic factors – gross domestic product, inflation, level of unemployment, rate of interest etc. Structural economic problems today are those that are not merely due to the normal business cycle, but...

Does risk shifting incentives or risk management incentives dominate when firms rollover large amounts of maturing debt? The empirical evidence supports the risk management hypothesis by identifying a hump-shaped relation between long-term debt maturity and firm risk. Using...