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At this 2006 workshop hosted by the Bank of Canada, an international group of market participants, regulators, and policy-makers gathered to assess recent developments in the derivatives market. Among the topics discussed were the recent prodigious growth in risk-transfer instruments, including credit derivatives and inflation-linked derivatives, as well as the accompanying challenges and benefits. Overall, the development of derivatives markets was seen as providing broad economic benefits, including more complete financial markets, improved market liquidity, and increased capacity of the financial system to effectively price and bear risk. Yet concern was also voiced that market participants do not fully understand the risks that arise in trading credit derivatives.

The authors review the state of the debate on hedge funds and the potential threat that hedge funds pose to financial stability. The collapse of a hedge fund or a group of hedge funds might pose a systemic risk directly by damaging systematically important financial institutions, or indirectly by increasing market volatility and generating a […]

The ongoing review of the IMF, initiated in 2005 by Managing Director De Rato, presents an excellent opportunity to re-examine the role, functions and governance of the Fund.

We propose a framework that allows a portfolio manager to quantify the probability of simultaneous losses in multiple assets of a collateral portfolio. Using this framework, we propose a methodology to conduct stress tests on the market value of the portfolio of collateral when undesirable extreme dependence occurs.

This paper analyzes endogenous fluctuations in total factor productivity (TFP) in a dynamic general equilibrium model with heterogeneous agents, and illustrates the interaction of credit market frictions, asset prices, the entry and exit of firms, and fluctuations in TFP in response to firm-level productivity and aggregate credit-market shocks. I also analyze the effect of bankruptcy and foreclosure laws on fluctuations in TFP through their effect on credit market frictions.

This study investigate how debt restructurings have evolved over the decades. Debtors and creditors have a long history of engaging an outsider – a “third party”, such as the IMF – to organise and facilitate debt restructurings.

Stress testing, at its most general level, is an investigation of the performance of an entity under abnormal operating conditions.

The authors show that debt and equity issuance are procyclical for most listed U.S. firms.

The authors estimate a small monthly macroeconometric model (BEAM, for bonds, equity, and money) of the Canadian economy built around three cointegrating relationships linking financial and real variables over the 1975–2002 period.

The authors examine how the use of extreme value theory yields collateral requirements that are robust to extreme fluctuations in the market price of the asset used as collateral.