Finance and Insurance Seminar WS 2012/13
“Calibration of the Multi-Currency LIBOR
Market Model as an Orthonormal Procrustes Problem”
This paper presents a method for calibrating a multicurrency lognormal LIBOR Market Model to market data of at–the–money caps, swaptions and FX options. By exploiting the fact that multivariate normal distributions are invariant under orthonormal transformations, the calibration problem is decomposed into manageable stages, while maintaining the ability to achieve realistic correlation structures between all modelled market variables.
Filip Uzelac, M.Sc., Bonn Graduate School of Economics
"DB vs. DC plans: Portability vs. asset price & contribution risk"
This paper compares two different types of private retirement plans from the perspective of a representative beneficiary: Defined Benefit (DB) and Defined Contribution (DC) plan. One of the key differences is that DB plans carry portability risks, whereas DC plans bear asset and contribution risk. We model this tradeoff explicitly in this paper and compare these two plans in a utility based framework. Our numerical analysis focuses on detemining the critical job switching intensity or the critical long-term contribution rate such that the beneficiary is indifferent between the DB and DC plan.
Prof. Dr. Monique Jeanblanc, Université d'Evry Val d'Essonne, France
"Various models for credit risk"
In that talk, we shall present various models of credit risk, including multidefault setting. We shall pay attention to conditional probability of the default times, showing, in particular, that in a single default setting, the intensity process does not contain all the information on this conditional law.
Prof. Dr. Josef Teichmann, ETH Zürich, Switzerland
"Robust Calibration for models in Finance"
We present a simple and efficient calibration technique for multivariate models, which allows to include information on derivatives' prices and time series information into models for economic factors. The technique is based on two paradigms: first, model parameters which do NOT change under equivalent measure changes, should be estimated from the time series. Second, model parameters, which depend on the chosen equivalent measure should be estimated from derivatives' prices.
|Prof. Dr. Robert Hauswald, American University Washington D.C., USA |
"The Real Effect of Foreign Bank"
Although foreign banks can act as catalysts for financial and economic development their role remains controversial because they might simply displace local lending, thereby tightening firms' overall access to credit. We study the economic channels through which local lending by foreign banks affects real economic activity in a large cross-section of developing and advanced countries, whose industrial sectors differ in their external financing needs. We find that such foreign domestic lending alleviates financial constraints and increases real growth net of the competitive reaction of local lenders, which is particularly valuable during local banking crises. In addition to providing stable access to credit, foreign banks also mitigate the consequence of informational and contract-enforcement obstacles to lending. Using their often superior lending expertise, they act as substitutes for insufficient legal and informational infrastructure, especially in developing credit markets, whose borrowers often lack access to alternative sources of finance.
Eva Schliephake, M.Sc., University of Magdeburg
"Capital Requirement Regulation and Government Debt"
Microprudential capital requirements are designed to reduce excessive risk taking of banks. By requiring higher equity funding for risky assets, indeed, more banks hold safe assets. This paper argues that a self interested government that simultaneously regulates the banking sector and borrows from it, can use risk weighted capital requirements to increase its budget. Thereby, the risk weights for risky assets would be set too high compared to the risk weight necessary to discipline banks. This could have a negative impact on welfare. First, the allocation of funding to the loan asset market is reduced, which could have a negative impact on long term growth. Second, the government can be tempted to increase its debt level due to the easy funding conditions, on the cost of future generations. Higher government debt also makes the government more prone to a sovereign debt crises. However, a short term focused government regulator might be tempted to overlook such a future risk creating and increasing systemic risk in the banking sector.
Prof. Dr. Daniel Metzger, Stockholm School of Economics, Sweden
"How Do CEOs Matter? The Effect of Industry Expertise on Acquisition Returns."
We show how CEO characteristics affect the performance of acquiring companies in diversifying takeovers. When the CEO of the acquiring company has experience in the target company's industry, abnormal announcement returns to his company are between two and three times higher than those generated by a CEO who is new to the industry. This performance is mainly driven by an experienced CEO's ability to capture a larger fraction of the surplus. Industry-expert CEOs are able to redistribute financial surplus in favor of their shareholders by negotiating better deals and by paying a lower premium for the target company. This effect is particularly pronounced in environments with high information asymmetry and in bilateral negotiations compared to auctions. We also find that industry-expert CEOs on average select low-surplus deals. We argue that this evidence is consistent with industry experts having superior negotiation ability.