IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Endogenous Leverage and Asset Pricing in Double Auctions

We study the trading of real assets financed by collateralized loans in an agent based model of a continuous double auction. This approach provides a complementary perspective on recent advances in the general equilibrium theory of endogenous leverage by studying a model that simultaneously describes dynamic and equilibrium properties of the market. Rather than taking prices as parametric there is an explicit price formation process which can be simulated or studied empirically. This is important because the economics of leverage is key to the understanding of financial crisis. We find that simulated double auctions converge to stable final states close to the theoretical equilibrium state. Consistent with equilibrium theory, real assets are traded at a price above fundamental value in the double auction. The equilibrium level of leverage also emerges in the simulations of the double auction.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://www.oenb.at/dam/jcr:2fb1fdaf-2555-4503-a5d6-ac5c267710d3/wp184_screen_tcm16-256982.pdf
Download Restriction: no

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 184.

as
in new window

Length: 29
Date of creation: 31 Jul 2013
Date of revision:
Handle: RePEc:onb:oenbwp:184
Contact details of provider: Postal:
P.O. Box 61, A-1011 Vienna, Austria

Phone: +43/1/404 20 7205
Fax: +43/1/404 20 7299
Web page: http://www.oenb.at/
Email:


More information through EDIRC

Order Information: Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
Email:


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.:

as in new window
  1. John Geanakoplos & William Zame, 2013. "Collateral Equilibrium - A Basic Framework," EIEF Working Papers Series 1319, Einaudi Institute for Economics and Finance (EIEF), revised Aug 2013.
  2. Simon Gilchrist & Ben S. Bernanke & Mark Gertler, 1994. "The financial accelerator and the flight to quality," Finance and Economics Discussion Series 94-18, Board of Governors of the Federal Reserve System (U.S.).
  3. John Geanakoplos, 2010. "The Leverage Cycle," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 1-65 National Bureau of Economic Research, Inc.
  4. Shin, Hyun Song, 2010. "Risk and Liquidity," OUP Catalogue, Oxford University Press, number 9780199546367.
  5. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  6. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 663-691.
  7. Stefan Thurner & J. Doyne Farmer & John Geanakoplos, 2010. "Leverage Causes Fat Tails and Clustered Volatility," Cowles Foundation Discussion Papers 1745, Cowles Foundation for Research in Economics, Yale University.
  8. Gary B. Gorton & Andrew Metrick, 2012. "Getting up to Speed on the Financial Crisis: A One-Weekend-Reader's Guide," NBER Working Papers 17778, National Bureau of Economic Research, Inc.
  9. MERTENS , Jean-François, 1996. "The limit-price mechanism," CORE Discussion Papers 1996050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Felix Kubler & Karl Schmedders, 2003. "Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral," Econometrica, Econometric Society, vol. 71(6), pages 1767-1793, November.
  11. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
  12. John Geanakoplos, 2009. "The Leverage Cycle," Cowles Foundation Discussion Papers 1715R, Cowles Foundation for Research in Economics, Yale University, revised Jan 2010.
  13. John Geanakoplos, 2010. "Solving the Present Crisis and Managing the Leverage Cycle," Cowles Foundation Discussion Papers 1751, Cowles Foundation for Research in Economics, Yale University.
  14. Friedman, Daniel & Abraham, Ralph, 2009. "Bubbles and crashes: Gradient dynamics in financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 922-937, April.
  15. Bossaerts, Peter, 2009. "The Experimental Study of Asset Pricing Theory," Foundations and Trends(R) in Finance, now publishers, vol. 3(4), pages 289-361, November.
  16. Ana Fostel & John Geanakoplos, 2011. "Endogenous Leverage: VaR and Beyond," Cowles Foundation Discussion Papers 1800, Cowles Foundation for Research in Economics, Yale University.
  17. John Geanakoplos, 2010. "Solving the present crisis and managing the leverage cycle," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 101-131.
  18. Smith,Vernon L., 2008. "Rationality in Economics," Cambridge Books, Cambridge University Press, number 9780521871358, June.
  19. Weerachart Kilenthong, 2011. "Collateral premia and risk sharing under limited commitment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(3), pages 475-501, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:onb:oenbwp:184. 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: (Markus Knell and Helmut Stix)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.