Equilibrium Investment with Random and State-Dependent Risk Aversion
Sprache des Vortragstitels:
Englisch
Original Tagungtitel:
Vienna Seminar in Mathematical Finance and Probability
Sprache des Tagungstitel:
Englisch
Original Kurzfassung:
Abstract: In this talk, I will introduce a simple interbank model with stochastic dynamics and multiple maturities, allowing us to study the systemic risk-aware term structure for interbank claims. To account for informational contagion, we consider a mark-to-market valuation of interbank assets which turns out to involve a non-standard forward-backward mechanism, since conditional probabilities of future solvency are required to determine today's balance sheets. The outcome is a form of distress contagion that acts as a stochastic volatility term in the capital of each bank, leading, endogenously, to both volatility clustering and a marked downside ?leverage effect?. Moreover, we will see the possibility of an inverted term structure arising for the entire system solely from excessive volatility of a core group of banks. This is based on joint work with Zach Feinstein.
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