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The VIX, the Variance Premium and Stock Market Volatility
We decompose the squared VIX index, derived from US S&P500 options prices, into the conditional variance of stock returns and the equity variance premium. The latter is increasing in risk aversion inExpand
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Liquidity Hoarding and Interbank Market Spreads: The Role of Counterparty Risk
We study the functioning and possible breakdown of the interbank market in the presence of counterparty risk. We allow banks to have private information about the risk of their assets. We show howExpand
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Liquidity hoarding and interbank market rates: The role of counterparty risk
We develop a model of interbank lending and borrowing with counterparty risk. The model has two key ingredients. First, liquidity in the banking sector is endogenous, so there is an opportunity costExpand
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A Theory of Bank Liquidity Requirements
We develop a theory of bank liquidity (cash reserve) requirements. Because cash is both observable and riskless, greater cash holdings improve bank incentives to manage risk in the remaining,Expand
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Risk-Sharing or Risk-Taking? Counterparty Risk, Incentives and Margins
We analyze optimal hedging contracts and show that although hedging aims at sharing risk, it can lead to more risk-taking. News implying that a hedge is likely to be loss-making undermines theExpand
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What Do Asset Prices Have to Say About Risk Appetite and Uncertainty?
Building on intuition from the dynamic asset pricing literature, we uncover unobserved risk aversion and fundamental uncertainty from the observed time series of the variance premium and the creditExpand
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Clearing, Counterparty Risk, and Aggregate Risk
The paper studies the optimal design of clearing systems. The paper analyzes how counterparty risk should be allocated, whether traders should be fully insured against that risk, and how moral hazardExpand
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Lending-of-Last-Resort is as Lending-of-Last-Resort Does: Central Bank Liquidity Provision and Interbank Market Functioning in the Euro Area
This paper investigates the impact of ample liquidity provision by the European Central Bank on the functioning of the overnight unsecured interbank market from 2008 to 2014. We use novel data onExpand
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Risk, Uncertainty and Monetary Policy
The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion andExpand
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Interbank Lending, Credit Risk Premia and Collateral
We study the functioning of secured and unsecured inter-bank markets in the presence of credit risk. The model generates empirical predictions that are in line with developments during the 2007-2009Expand
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