Monetary policy and risk taking. Bruegel Working Paper 2010/00, February 2010

We assess, through VAR evidence, the effects of monetary policy on banks’ risk exposure and find the presence of a risk-taking channel. A model combining fragile banks prone to risk mis-incentives and credit constrained firms, whose collateral fluctuations generate a balance sheet channel, is used to rationalize the evidence. A monetary expansion increases bank leverage. With two consequences: on the one side this exacerbates risk exposure; on the other, the risk spiral depresses output, therefore dampening the conventional amplification effect of the financial accelerator. Keywords: monetary policy, bank behavior, leverage, financial accelerator.

The Penetration of Financial Instability in Agricultural Credit and Leveraging. Factor Markets Working Paper No. 2, September 2011

This paper describes the aggregate rural capital markets of the EU and the main differences between the markets of its member countries. The results of our study suggest that the agricultural credit markets are still quite segmented and the segments are country- rather than currency- or region specific. Financial instability in Europe is also penetrating the agricultural sector and the variation of interest rates for agricultural credit is increasing across countries. Perhaps the most dramatic signal of growing financial instability is that the financial leverage (gearing rate) of European farms rose in 2008 by almost 4 percentage points, from 14 to 18%. The 4 percentage-point annual rise was twice the 2 percentage-point rise observed during the economic recession in the late 1980s and early 1990s. The distribution of the financial leverage of agriculture across countries does not, however, reflect the distribution of country-specific risk premiums in the manner that they are observed in government bond yields. Therefore, in those countries that have the weakest financial situation in the public sector and in which the bond markets are encumbered with high country-specific risk premiums, the agricultural sector is not directly exposed to a very large risk of increasing interest rates, since it is not so highly leveraged. For example in Greek and Spanish agriculture, the financial leverage (gearing) rate is only 0.6% and 2.2% respectively, while the highest gearing rates are found elsewhere (in Denmark), reaching 50%.

Discussions in Europe on Variable Compensation in the Financial Sector. EU Centre Singapore Working Paper no. 20, February 2014

Bonuses – which are often used to mitigate principal-agent problems and to encourage employees to work harder – have increased tremendously in the financial sector during the last decade, and have often been seen as a contributing factor to the financial crisis of 2008. The recent European Union (EU) action to adopt a policy that restricts bonuses paid to bankers may seem promising at first, but this does not address the real issues behind variable rewards. Compensation policies should be changed to encourage responsible risk-taking and decision-making through the implementation of broader performance metrics, forfeitable holdbacks and hybrid bonds. Furthermore, a change in organisational culture is needed to improve ethical behaviour leading to a re-balancing of stakeholders’ interests in the financial sector.

Fine-tuning the use of bail-in to promote a stronger EU financial system. CEPS Special Report No. 136/April 2016

This paper discusses the application of the new European rules for burden-sharing and bail-in in the banking sector, in view of their ability to accommodate broader policy goals of aggregate financial stability. It finds that the Treaty principles and the new discipline of state aid and the restructuring of banks provide a solid framework for combating moral hazard and removing incentives that encourage excessive risk-taking by bankers. However, the application of the new rules may have become excessively attentive to the case-by-case evaluation of individual institutions, while perhaps losing sight of the aggregate policy needs of the banking system. Indeed, in this first phase of the banking union, while large segments of the EU banking sector still require a substantial restructuring and recapitalisation, the market may not be able to provide all the needed resources in the current environment of depressed profitability and low growth. Thus, a systemic market failure may be making the problem impossible to fix without resorting to temporary public support. But the risk of large write-offs of capital instruments due to burden-sharing and bail-in may represent an insurmountable obstacle to such public support as it may set in motion an investors’ flight. The paper concludes by showing that existing rules do contain the flexibility required to accommodate aggregate policy requirements in the general interest, and outlines a public support scheme for the precautionary recapitalisation of solvent banks that would be compliant with EU law.

Financial risks and opportunities in the time of climate change. Bruegel Policy Brief ISSUE 2016/02 APRIL 2016

Real economic imbalances can lead to financial crisis. The current unsustainable use of our environment is such an imbalance. Financial shocks can be triggered by either intensified environmental policies, cleantech breakthroughs (both resulting in the stranding of unsustainable assets), or the economic costs of crossing ecological boundaries (eg floods and droughts due to climate change). Financial supervisors and risk managers have so far paid little attention to this ecological dimension, allowing systemic financial imbalances resulting from ecological pressures to build up. Inattention also leads to missed economic and financial opportunities from the sustainability transition.

Dynamic D-Vine copula model with applications to Value-at-Risk (VaR)

Regular vine copulas are multivariate dependence models constructed from pair-copulas (bivariate copulas). In this paper, we allow the dependence parameters of the pair-copulas in a D-vine decomposition to be potentially time-varying, following a nonlinear restricted ARMA(1,m) process, in order to obtain a very flexible dependence model for applications to multivariate financial return data. We investigate the dependence among the broad stock market indexes from Germany (DAX), France (CAC 40), Britain (FTSE 100), the United States (S&P 500) and Brazil (IBOVESPA) both in a crisis and in a non-crisis period. We find evidence of stronger dependence among the indexes in bear markets. Surprisingly, though, the dynamic D-vine copula indicates the occurrence of a sharp decrease in dependence between the indexes FTSE and CAC in the beginning of 2011, and also between CAC and DAX during mid-2011 and in the beginning of 2008, suggesting the absence of contagion in these cases. We also evaluate the dynamic D-vine copula with respect to Value-at-Risk (VaR) forecasting accuracy in crisis periods. The dynamic D-vine outperforms the static D-vine in terms of predictive accuracy for our real data sets.

Monopolistic insurance and competitive financial markets

This dissertation studies the interaction between insurance and financial markets. Individuals who differ only in risk can save through a competitive market. They also have access to insurance contracts offered by a monopolist firm. We show that an equilibrium exists in that economy. Fundamentally, we identify an externality imposed on the insurer's decision by the endogeneity of prices in the financial market.We argue that, because of such externality and in contrast to the pure contract theory case, equilibrium may exhibit pooling.

Is the risk of product market predation a cost of disclosure?

Thesis (Ph.D.)--University of Washington, 2016-06

Macroeconomic Dynamics of Market Risk Capital Requirements and Credit Supply Interdependence

Thesis (Ph.D.)--University of Washington, 2016-06

Self-Reported Fall and Associate Risk Factors Among Korean American Adults In Washington State

Thesis (Master's)--University of Washington, 2016-06

Oral glucose tolerance test in children and adolescents: Positives and pitfalls

Objectives: To describe the glycaemic status (assessed by an oral glucose tolerance test (OGTT)) and associated comorbidities in a cohort of Australian children and adolescents at risk of insulin resistance and impaired glucose homeostasis (IGH). Methods: Twenty-one children and adolescents (three male, 18 female) (18 Caucasian, one Indigenous, two Asian) (20 obese, one lipodystrophy) referred to the Paediatric Endocrinology and Diabetes Clinic underwent a 2-h OGTT with plasma glucose and insulin measured at baseline, + 60 and + 120 min. If abnormal, the OGTT was repeated. Results: The mean (SD) age was 14.2 (1.6) years, BMI 38.8 (7.0) kg/m(2) and BMI-SDS 3.6 (0.6). Fourteen patients had fasting insulin levels >21 mU/L. Type 2 diabetes mellitus was diagnosed in one patient, impaired glucose tolerance (IGT) in four patients and impaired fasting glycaemia (IFG) in one patient. Despite no weight loss, only one patient had a persistently abnormal OGTT on repeat testing. Three patients with IGH were medicated with risperidone at the time of the initial OGTT. One patient who had persistent IGT had continued risperidone. The other two patients had initial OGTT results of IGT and diabetes mellitus type 2. They both ceased risperidone between tests and repeat OGTT showed normal glycaemic status. Conclusions: Use of fasting glucose alone may miss cases of IGH. Diagnosis of IGT should not be made on one test alone. Interpretation of glucose and insulin responses in young people is limited by lack of normative data. Larger studies are needed to generate Australian screening recommendations. Further assessment of the potential adverse effects of atypical antipsychotic medication on glucose homeostasis in this at-risk group is important.

Cardiovascular disease and PPARdelta: Targeting the risk factors

Metabolism, in part, is regulated by the peroxisome proliferator-activated receptors (PPARs). The PPARs act as nutritional lipid sensors and three mammalian PPAR subtypes designated PPARalpha (NR1C1), PPARgamma (NR1C3) and PPARdelta (NR1C2) have been identified. This subgroup of nuclear hormone receptors binds DNA and controls gene expression at the nexus of pathways that regulate lipid and glucose homeostasis, energy storage and expenditure in an organ-specific manner. Recent evidence has demonstrated activation of PPARdelta in the major mass peripheral tissue (ie, adipose and skeletal muscle). It enhances glucose tolerance, insulin-stimulated glucose disposal, lipid catabolism, energy expenditure, cholesterol efflux and oxygen consumption. These effects positively influence the blood-lipid profile. Furthermore, PPARdelta activation produces a predominant type I/slow twitch/oxidative muscle fiber phenotype that leads to increased endurance, insulin sensitivity and resistance to obesity. PPARdelta has rapidly emerged as a potential target in the battle against dyslipidemia, insulin insensitivity, type II diabetes and obesity, with therapeutic efficacy in the treatment of cardiovascular disease risk factors. GW-501516 is currently undergoing phase II safety and efficacy trials in human volunteers for the treatment of dyslipidemia. The outcome of these clinical trials are eagerly awaited against a background of conflicting reports about cancer risks in genetically predisposed animal models. This review focuses on the potential pharmacological utility of selective PPARdelta agonists in the context of risk factors associated with metabolic and cardiovascular disease.

Financial aspects of heart failure programs of care

As suggested by studies that have examined the economic burden imposed by heart failure and, more specifically where the greatest expenditure occurs, the key to cost-effectively minimising the impact of a sustained heart failure epidemic is to minimise recurrent hospital use-even at the expense of increasing levels of community-based care and prescribed pharmacotherapy [Mark DB. Economics of treating heart failure. Am J Cardiol 1997;80:33H-38H; Weintraub WS, Cole J, Tooley JF. Cost and cost-effectiveness studies in heart failure research. Am Heart J 2002;143:565-76]. This paper examines the potential cost-benefits of applying specialist heart failure programs of care and the range of financial issues that need to be considered when establishing a formal heart failure service. (C) 2005 European Society of Cardiology. Published by Elsevier B.V.

Using extreme value theory to measure value-at-risk for daily electricity spot prices

The recent deregulation in electricity markets worldwide has heightened the importance of risk management in energy markets. Assessing Value-at-Risk (VaR) in electricity markets is arguably more difficult than in traditional financial markets because the distinctive features of the former result in a highly unusual distribution of returns-electricity returns are highly volatile, display seasonalities in both their mean and volatility, exhibit leverage effects and clustering in volatility, and feature extreme levels of skewness and kurtosis. With electricity applications in mind, this paper proposes a model that accommodates autoregression and weekly seasonals in both the conditional mean and conditional volatility of returns, as well as leverage effects via an EGARCH specification. In addition, extreme value theory (EVT) is adopted to explicitly model the tails of the return distribution. Compared to a number of other parametric models and simple historical simulation based approaches, the proposed EVT-based model performs well in forecasting out-of-sample VaR. In addition, statistical tests show that the proposed model provides appropriate interval coverage in both unconditional and, more importantly, conditional contexts. Overall, the results are encouraging in suggesting that the proposed EVT-based model is a useful technique in forecasting VaR in electricity markets. (c) 2005 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.

Conditional risk, return and contagion in the banking sector in Asia

This paper investigates risk and return in the banking sector in three Asian markets of Taiwan, China and Hong Kong. The study focuses on the risk-return relation in a conditional factor GARCH-M framework that controls for time-series effects. The factor approach is adopted to incorporate intra-industry contagion and an analysis of spillovers between large banks and small banks. Finally, the study provides evidence on these relations before and after the Asian financial crisis of 1997. The results are generally consistent across the markets and with expectations.