Balance sheet capacity and endogenous risk
Banks operating under Value-at-Risk constraints give rise to a welldefined aggregate balance sheet capacity for the banking sector as a whole that depends on total bank capital. Equilibrium risk and market risk premiums can be solved in closed form as functions of aggregate bank capital. We explore the empirical properties of the model in light of recent experience in the financial crisis and highlight the importance of balance sheet capacity as the driver of the financial cycle and market risk premiums.
|Date of creation:||Jan 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/
More information through EDIRC
References listed on IDEAS
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.:
- Prasanna Gai & Nicholas Vause, 2006.
"Measuring Investors' Risk Appetite,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 2(1), March.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Tauchen, George & Zhang, Harold & Liu, Ming, 1996.
"Volume, volatility, and leverage: A dynamic analysis,"
Journal of Econometrics,
Elsevier, vol. 74(1), pages 177-208, September.
- Tauchen, George E. & Harold Zhang & Ming Liu, 1995. "Volume, Volatility and Leverage: A Dynamic Analysis," Working Papers 95-02, Duke University, Department of Economics.
- Basak, Suleyman & Croitoru, Benjamin, 2000.
"Equilibrium Mispricing in a Capital Market with Portfolio Constraints,"
Review of Financial Studies,
Society for Financial Studies, vol. 13(3), pages 715-48.
- Suleyman Basak & Benjamin Croitoru, . "Equilibrium Mispricing in a Capital Market with Portfolio Constraints," Rodney L. White Center for Financial Research Working Papers 17-99, Wharton School Rodney L. White Center for Financial Research.
- Jones, Christopher S., 2003. "The dynamics of stochastic volatility: evidence from underlying and options markets," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 181-224.
- repec:fth:starer:9825 is not listed on IDEAS
- Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Ebens, Heiko, 2001. "The distribution of realized stock return volatility," Journal of Financial Economics, Elsevier, vol. 61(1), pages 43-76, July.
- S. Rao Aiyagari & Mark Gertler, 1998.
""Overreaction" of Asset Prices in General Equilibrium,"
NBER Working Papers
6747, National Bureau of Economic Research, Inc.
- S. Rao Aiyagari & Mark Gertler, 1999. ""Overreaction" of Asset Prices in General Equilibrium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 3-35, January.
- Aiyagari, S.R. & Gertler, M., 1998. ""Overreaction" of Asset Prices in General Equilibrium," Working Papers 98-25, C.V. Starr Center for Applied Economics, New York University.
- Hyun Song Shin & Emanuel Moench & Tobias Adrian, 2010.
"Financial Intermediation, Asset Prices, and Macroeconomic Dynamics,"
2010 Meeting Papers
297, Society for Economic Dynamics.
- Tobias Adrian & Emanuel Moench & Hyun Song Shin, 2010. "Financial intermediation, asset prices, and macroeconomic dynamics," Staff Reports 422, Federal Reserve Bank of New York.
- Denis Gromb & Dimitri Vayanos, 2002.
"Equilibrium and welfare in markets with financially constrained arbitrageurs,"
LSE Research Online Documents on Economics
448, London School of Economics and Political Science, LSE Library.
- Gromb, Denis & Vayanos, Dimitri, 2002. "Equilibrium and welfare in markets with financially constrained arbitrageurs," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 361-407.
- Gromb, Denis & Vayanos, Dimitri, 2001. "Equilibrium and Welfare in Markets with Financially Constrained Arbitrageurs," CEPR Discussion Papers 3049, C.E.P.R. Discussion Papers.
- Bengt Holmstrom & Jean Tirole, 1996.
"Private and Public Supply of Liquidity,"
NBER Working Papers
5817, National Bureau of Economic Research, Inc.
- Antonio E. Bernardo & Ivo Welch, 2004.
"Liquidity and Financial Market Runs,"
The Quarterly Journal of Economics,
MIT Press, vol. 119(1), pages 135-158, February.
- Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
- Hyun Song Shin & Erkko Etula & Tobias Adrian, 2010. "Risk Appetite and Exchange Rates," 2010 Meeting Papers 311, Society for Economic Dynamics.
- repec:fth:starer:98-25 is not listed on IDEAS
- Mele, Antonio, 2007. "Asymmetric stock market volatility and the cyclical behavior of expected returns," Journal of Financial Economics, Elsevier, vol. 86(2), pages 446-478, November.
When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:43141. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager)
If references are entirely missing, you can add them using this form.