No�?Arbitrage Pricing Under Systemic Risk: Accounting for Cross�?Ownership

  title={No�?Arbitrage Pricing Under Systemic Risk: Accounting for Cross�?Ownership},
  author={T. Fischer},
  journal={Econometric Modeling: Capital Markets - Risk eJournal},
  • T. Fischer
  • Published 2014
  • Economics
  • Econometric Modeling: Capital Markets - Risk eJournal
  • We generalize Merton’s asset valuation approach to systems of multiple financial firms where cross‐ownership of equities and liabilities is present. The liabilities, which may include debts and derivatives, can be of differing seniority. We derive equations for the prices of equities and recovery claims under no‐arbitrage. An existence result and a uniqueness result are proven. Examples and an algorithm for the simultaneous calculation of all no‐arbitrage prices are provided. A result on… CONTINUE READING
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