The crisis, Fed, Quants and stochastic optimal control
AbstractThe Dodd–Frank (D–F) Financial Reform Bill authorizes the Federal Reserve to monitor the financial services marketplace to identify potential threats to the stability of the US financial system. Alan Greenspan's retrospective indicates what he has learned from the crisis. He argues that the crisis, the housing price bubble, was unpredictable and unavoidable. Greenspan now focuses on desirable capital requirements, or leverage, for banks and financial intermediaries. I explain why the Fed's and Greenspan's views stem from a lack of the appropriate tools of analysis of what is an excessive debt or leverage. The Quants who devised the highly leveraged financial derivatives ignored systemic risk.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 28 (2011)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/30411
Dodd–Frank reform bill; Greenspan; Capital requirements; Stochastic optimal control; Warning signals of crisis; Optimal leverage and debt ratios; Bubbles; Dodd–Frank bill;
Other versions of this item:
- Stein, Jerome L., 2011. "The crisis, Fed, Quants and stochastic optimal control," Economic Modelling, Elsevier, vol. 28(1-2), pages 272-280, January.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jerome L. Stein, 2008.
"A Tale of Two Debt Crises: A Stochastic Optimal Control Analysis,"
CESifo Working Paper Series
2220, CESifo Group Munich.
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- Stein, Jerome L., 2009. "A tale of two debt crises: a stochastic optimal control analysis," Economics Discussion Papers 2009-44, Kiel Institute for the World Economy.
- Wendell H. Fleming, 2005. "Optimal Investment Models With Minimum Consumption Criteria," Australian Economic Papers, Wiley Blackwell, vol. 44(4), pages 307-321, December.
- Jerome L. Stein, 2005. "Optimal Debt And Endogenous Growth In Models Of International Finance," Australian Economic Papers, Wiley Blackwell, vol. 44(4), pages 389-413, December.
- Wendell Fleming & Jerome L. Stein, 2002.
"Stochastic Optimal Control, International Finance and Debt,"
CESifo Working Paper Series
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- Fleming, Wendell H. & Stein, Jerome L., 2004. "Stochastic optimal control, international finance and debt," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 979-996, May.
- Jerome L. Stein, 2011.
"The Diversity of Debt Crises in Europe,"
Cato Journal, Cato Institute, vol. 31(2), pages 199-215, Spring/Su.
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