arXiv · arXiv q-fin · 2013
The investment economy is a main characteristic of prosperous society. The investment portfolio management is a main financial problem, which has to be solved by the investment, commercial and central banks with the application of modern portfolio theory in the investment economy. We use the learning analytics together with the integrative creative imperative intelligent conceptual co-lateral adaptive thinking with t…
Dimitri O. Ledenyov, Viktor O. Ledenyov
arXiv · arXiv q-fin · 2024
Central Bank Digital Currency (CBDC) can be defined as a virtual currency based on node network and digital encryption algorithm issued by a country which has a legal credit protection. CBDCs are supported by Distributed Ledger Technologies (DLTs), and they may allow a universal means of payments for the digital era. There are many ways to proceed, they all require central banks to develop technological expertise. Co…
Carlos Alberto Durigan Junior, Mauro De Mesquita Spinola, Rodrigo Franco Gonçalves, Fernando José Barbin Laurindo
arXiv · arXiv q-fin · 2024
This paper examines the pivotal role central banks play in advancing sustainable finance, a crucial component in addressing global environmental and social challenges. As supervisors of financial stability and economic growth, central banks have dominance over the financial system to influence how a country moves towards sustainable economy. The chapter explores how central banks integrate sustainability into their m…
A T M Omor Faruq, Md Toufiqul Huq
arXiv · arXiv q-fin · 2020
We consider a central bank strategy for maintaining a two-sided currency target zone, in which an exchange rate of two currencies is forced to stay between two thresholds. To keep the exchange rate from breaking the prescribed barriers, the central bank is generating permanent price impact and thereby accumulating inventory in the foreign currency. Historical examples of failed target zones illustrate that this inven…
Eyal Neuman, Alexander Schied, Chengguo Weng, Xiaole Xue
arXiv · arXiv q-fin · 2012
We describe the innovations in finances, introduced over the recent decades, and analyze most of the business and regulatory challenges, faced by the financial industry, because of the present disruptive changes in the global capital markets. We use the integrative thinking approach to formulate the new central bank strategy and propose that the new strategy has to be focused on the constant management of the monetar…
Dimitri O. Ledenyov, Viktor O. Ledenyov
arXiv · arXiv q-fin · 2020
Taking the European Central Bank unconventional policies as a reference, we suggest a class of Multiplicative Error Models (MEM) taylored to analyze the impact such policies have on stock market volatility. The new set of models, called MEM with Asymmetry and Policy effects (MAP), keeps the base volatility dynamics separate from a component reproducing policy effects, with an increase in volatility on announcement da…
Demetrio Lacava, Giampiero M. Gallo, Edoardo Otranto
arXiv · arXiv q-fin · 2016
We show how bad and good volatility propagate through forex markets, i.e., we provide evidence for asymmetric volatility connectedness on forex markets. Using high-frequency, intra-day data of the most actively traded currencies over 2007 - 2015 we document the dominating asymmetries in spillovers that are due to bad rather than good volatility. We also show that negative spillovers are chiefly tied to the dragging s…
Jozef Barunik, Evzen Kocenda, Lukas Vacha
OpenAlex · Review of International Political Economy · 2016 · cites 273
In its capacity as debt issuer, the state has played a growing role in financial life over the last 30 years. To examine this role and connect it to shadow banking, the paper develops the concept of the ‘repo trinity’, which captures a set of policy objectives that central banks outlined after the 1998 Russian crisis, the first systemic crisis of collateral-based finance. The repo trinity connected financial stabilit…
Daniela Gabor
arXiv · arXiv · 2026
This paper compares different methods for forecasting the term structure of U.S. and European zero-coupon government bonds using both traditional econometric and Machine Learning (ML) approaches. We compare classical models (e.g., Dynamic Nelson-Siegel (DNS) and Principal Component Analysis (PCA)) with different Neural Network (NN) architectures, including those inspired by the classical models, on the U.S. Treasury …
Tobias Lausser, Joao Eduardo Vuolo, Rudi Zagst
arXiv · arXiv · 2024
A growing number of contributions in the literature have identified a puzzle in the European carbon allowance (EUA) market. Specifically, a persistent cost-of-carry spread (C-spread) over the risk-free rate has been observed. We are the first to explain the anomalous C-spread with the credit spread of the corporates involved in the emission trading scheme. We obtain statistical evidence that the C-spread is cointegra…
Michele Azzone, Roberto Baviera, Pietro Manzoni
arXiv · arXiv · 2019
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate funding liquidity risk and contagion are available but they require not only banks' bilateral exposures data but also balance sheet data with sufficient granularity, which are hardly a…
V. Macchiati, G. Brandi, G. Cimini, G. Caldarelli, D. Paolotti
OpenAlex · Review of Financial Studies · 2015 · cites 137
The search for a market design that ensures stable bank funding is at the top of regulators' policy agenda. This paper empirically shows that the central counterparty (CCP)-based euro interbank repo market features this stability. Using a unique and comprehensive data set, we show that the market is resilient during crisis episodes and may even act as a shock absorber, in the sense that repo lending increases with ri…
Loriano Mancini, Angelo Ranaldo, Jan Wrampelmeyer
OpenAlex · The Journal of Finance · 1996 · cites 2067
ABSTRACT This article examines the optimal capital structure of a firm that can choose both the amount and maturity of its debt. Bankruptcy is determined endogenously rather than by the imposition of a positive net worth condition or by a cash flow constraint. The results extend Leland's (1994a) closed‐form results to a much richer class of possible debt structures and permit study of the optimal maturity of debt as …
Hayne E. Leland, Klaus Bjerre Toft
arXiv · arXiv q-fin · 2020
Crowded trades by similarly trading peers influence the dynamics of asset prices, possibly creating systemic risk. We propose a market clustering measure using granular trading data. For each stock the clustering measure captures the degree of trading overlap among any two investors in that stock. We investigate the effect of crowded trades on stock price stability and show that market clustering has a causal effect …
Marc van Kralingen, Diego Garlaschelli, Karolina Scholtus, Iman van Lelyveld
arXiv · arXiv · 2024
The financial industry has undergone a significant transition from the London Interbank Offered Rates (LIBORs) to Risk Free Rates (RFRs) such as, e.g., the Secured Overnight Financing Rate (SOFR) in the U.S. and the Cash Rate (AONIA) in Australia, as primary benchmark rates for borrowing costs. The paper examines the pricing and hedging method for financial products in a cross-currency framework with the special emph…
Yining Ding, Ruyi Liu, Marek Rutkowski
arXiv · arXiv · 2021
This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers the modeling of the liability liquidity risk (or funding liquidity), the second dimension is dedicated to the modeling of the asset liquidity risk (or market liquidity), whereas the third dimension considers the management of the asset-liability liquidi…
Thierry Roncalli
OpenAlex · The Journal of Finance · 2014 · cites 823
ABSTRACT We model a loop between sovereign and bank credit risk. A distressed financial sector induces government bailouts, whose cost increases sovereign credit risk. Increased sovereign credit risk in turn weakens the financial sector by eroding the value of its government guarantees and bond holdings. Using credit default swap (CDS) rates on European sovereigns and banks, we show that bailouts triggered the rise o…
Viral V. Acharya, Itamar Drechsler, Philipp Schnabl
arXiv · arXiv · 2024
This paper introduces a new algorithmic execution model that integrates interbank limit and market orders with internal liquidity generated through market making. Based on the Cartea et al.\cite{cartea2015algorithmic} framework, we incorporate market impact in interbank orders while excluding it for internal market-making transactions. Our model aims to optimize the balance between interbank and internal liquidity, r…
Yusuke Morimoto