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1010
result(s)
The Equity Premium and the Volatility Spread: The Role of Risk-Neutral Skewness
Staff Working Paper 2009-20
Bruno Feunou,
Jean-Sébastien Fontaine,
Roméo Tedongap
We introduce the Homoscedastic Gamma [HG] model where the distribution of returns is characterized by its mean, variance and an independent skewness parameter under both measures. The model predicts that the spread between historical and risk-neutral volatilities is a function of the risk premium and of skewness.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial markets
JEL Code(s):
G,
G1,
G12,
G13
June 11, 2009
Collateral Management in the LVTS by Canadian Financial Institutions
This article examines the incentives for banks to hold various assets on their balance sheets for use as collateral when the opportunity cost of doing so can be high. Focusing on the five-year period (2002-07) that preceded the financial crisis, it examines the choices made by financial institutions among the assets that are pledged as collateral in Canada's Large Value Transfer System. This serves as a baseline for collateral-management practices during relatively normal times. The results of this study are important for policy-makers, especially the Bank of Canada, which is concerned both about the efficient functioning of fixed-income markets and about the credit risk it ultimately bears in insuring LVTS settlement. The results suggest that relative market liquidity and market-making capacity are important factors in the choice of securities pledged as collateral in the LVTS.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Financial institutions,
Financial markets,
Payment clearing and settlement systems
June 11, 2009
The Complexities of Financial Risk Management and Systemic Risks
Risk-management systems in financial institutions have come under increasing scrutiny in light of the current financial crisis, resulting in calls for improvements and an increased role for regulators. Yet such objectives miss the intricacy at the heart of the risk-management process. This article outlines the complexity inherent in any modern risk-management system, which arises because there are shortcuts in the theoretical models that risk managers need to be aware of, as well as the difficulties in sensible calibration of model parameters. The author suggests that prudential regulation of such systems should focus on failures within the financial firm and in the market interactions between firms and reviews possible strategies that can improve the performance of risk management and microprudential regulatory practice.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Financial institutions,
Financial stability,
Financial system regulation and policies
Simulations du ratio du service de la dette des consommateurs en utilisant des données micro
Staff Working Paper 2009-18
Ramdane Djoudad
The author constructs a formal analytic framework to simulate the impact of various economic shocks on the household debt-service ratio, using data from the Canadian Financial Monitor (CFM) survey.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Econometric and statistical methods,
Financial stability
JEL Code(s):
C,
C1,
C15,
C3,
C31,
D,
D1,
D14,
E,
E5,
E51
Adopting Price-Level Targeting under Imperfect Credibility in ToTEM
Staff Working Paper 2009-17
Gino Cateau,
Oleksiy Kryvtsov,
Malik Shukayev,
Alexander Ueberfeldt
Using the Bank of Canada's main projection and policy-analysis model, ToTEM, this paper measures the welfare gains of switching from inflation targeting to price-level targeting under imperfect credibility. Following the policy change, private agents assign a probability to the event that the policy-maker will revert to inflation-targeting next period.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Monetary policy framework,
Monetary policy implementation
JEL Code(s):
E,
E3,
E31,
E5,
E52
Real Effects of Price Stability with Endogenous Nominal Indexation
Staff Working Paper 2009-16
Césaire Meh,
Vincenzo Quadrini,
Yaz Terajima
We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997).
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Economic models,
Financial markets,
Monetary policy framework,
Monetary policy transmission
JEL Code(s):
E,
E2,
E21,
E3,
E31,
E4,
E44,
E5,
E52
Heterogeneous Beliefs and Housing-Market Boom-Bust Cycles in a Small Open Economy
Staff Working Paper 2009-15
Hajime Tomura
This paper introduces heterogeneous beliefs among households in a small open economy model for the Canadian economy. The model suggests that simultaneous boom-bust cycles in house prices, output, investment, consumption and hours worked emerge when credit-constrained mortgage borrowers expect that future house prices will rise and this expectation is neither shared by savers nor realized ex-post.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Credit and credit aggregates,
Financial stability,
Inflation targets
JEL Code(s):
E,
E4,
E44,
E5,
E52
Testing for Financial Contagion with Applications to the Canadian Banking System
Staff Working Paper 2009-14
Fuchun Li
The author proposes a new test for financial contagion based on a non-parametric measure of the cross-market correlation. The test does not depend on the assumption that the data are drawn from a given probability distribution; therefore, it allows for maximal flexibility in fitting into the data.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Central bank research,
Econometric and statistical methods,
Financial stability
JEL Code(s):
C,
C1,
C12,
G,
G0,
G01,
G1,
G15
Price Movements in the Canadian Residential Mortgage Market
Staff Working Paper 2009-13
Jason Allen,
Darcey McVanel
The authors empirically analyze the price-setting behaviour of the major Canadian banks in the residential mortgage market over the period 1991–2007. They use weekly posted prices of the major mortgage providers to study the degree of competition in mortgage price setting.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial institutions,
Financial services
JEL Code(s):
D,
D4,
G,
G2