Mutual funds investing in emerging market economy (EME) bonds have increased almost seven-fold since the 2008 Great Financial Crisis (Graph 1). This development has raised two questions from a financial stability perspective. Firstly, how important is it to understand the fund-flow performance...

This paper studies the dynamic relationship between demand for the US Treasury yields and cross-currency swap (CCS) bases since the 2008 global financial crisis. Using a three-factor non-Gaussian-term structure model for the US Treasuries, an estimated short-rate premium in the yield curve tends...

We study the renminbi (RMB) central parity formation mechanism following the August 2015 reform using statistical models. We identify the roles of the onshore and offshore RMB exchange rates and the US dollar index in determining the central parity in a linear regression framework. The effect of...

Our paper presents a crude oil price model in which the price is confined in a wide moving band. A price crash occurs when the price breaches the lower boundary where a smooth-pasting condition is imposed. Using an asymmetric mean-reverting fundamental (supply/demand) shock, the solution derived...

Empirical findings and theoretical studies suggest that firms adjust toward time-varying target leverage ratios. This paper studies the performances of the default probabilities generated from two structural credit risk models (one with time-dependent leverage ratios and one with constant target...

This study develops a stress-testing framework to assess liquidity risk of banks, where liquidity and default risks can stem from the crystallisation of market risk arising from a prolonged period of negative asset price shocks. In the framework, exogenous asset price shocks increase banks'...

This paper examines the term structures of default probabilities that are generated by the Collin-Dufresne and Goldstein model and a dynamic-leverage-ratio model. The dynamic-leverage-ratio model is capable of producing term structures of default probabilities which are consistent with some...

In this paper we propose a simple and easy-to-use method for computing accurate estimate (in closed form) of the double barrier hitting time distribution of a mean-reverting lognormal process, and discuss its application to pricing exotic options whose payoffs are contingent upon barrier hitting...

The empirical results show that after the introduction of the three refinements to the Linked Exchange Rate system in May 2005 the Hong Kong dollar follows a bounded process that is consistent with a fully credible exchange rate band. The bounded process will limit the movements of the exchange...