market triggered changes in capital structure equilibrium price dynamics we analyze the internal consistency of using the market price of a firm s equity to trigger a contractual change in the firm s capital structure given that the value of the equity itself depends on the firm s capital structure of particular interest is the case of contingent capital for banks in the form of debt that converts to equity when conversion is triggered by a decline in the bank s stock price we analyze the problem of existence and uniqueness of equilibrium values for a firm s liabilities in this context meaning values consistent with a market price trigger discrete time dynamics allow multiple equilibria in contrast we show that the possibility of multiple equilibria can largely be ruled out in continuous time where the price of the triggering security adjusts in anticipation of breaching the trigger our main condition for existence of an equilibrium requires that the consequences of triggering a conversion be consistent with the direction in which the trigger is crossed for the design of contingent capital with a stock price trigger this condition may be interpreted to mean that conversion should be disadvantageous to shareholders and it is satisfied by setting the trigger sufficiently high uniqueness follows provided the trigger is sufficiently accessible by all candidate equilibria we illustrate precise formulations of these conditions with a variety of applications

credit spreads an empirical analysis on the informational content of stocks bonds and cds this paper explores the dynamic relationship between stock market implied credit spreads cds spreads and bond spreads a general vecm representation is proposed for changes in the three credit spread measures which accounts for zero one or two independent cointegration equations depending on the evidence provided by any particular company empirical analysis on price discovery based on a proprietary sample of north american and european firms and tailored to the specific vecm at hand indicates that stocks lead cds and bonds more frequently than the other way round it likewise confirms the leading role of cds with respect to bonds

a comprehensive eco efficiency model and dynamics of regional eco efficiency in china abstract in order to have a comprehensive eco efficiency measure which can incorporate productivity resource efficiency environmental efficiency and inter temporal comparability and circularity the paper proposes an extended data envelopment analysis model named gb us sbm model which combines global benchmark technology undesirable output super efficiency and slacks based measure using the gb us sbm model this paper investigates the dynamics of regional eco efficiency in china from 2000 to 2010 the empirical results show that the movement of average eco efficiency of china presents a v shape from 2000 to 2010 with the trough occurred in 2005 but there are big differences of eco efficiency among the regions for the growth of eco efficiency technological progress contributes 56 87 58 21 18 27 62 19 scale efficiency contributes 40 01 61 14 167 43 39 12 efficiency change contributes 3 82 19 99 63 40 2 16 to the eastern middle western and northeastern regions of china respectively these imply that there is a big space for western region to enhance its technological progress and huge space for the whole country to promote its management ability

assessing regional eco efficiency from the perspective of resource environmental and economic performance in china a bootstrapping approach in global data envelopment analysis abstract eco efficiency has been receiving increasing attention across the world this paper proposes an extended data envelopment analysis model which combines global benchmark technology directional distance function and a bootstrapping approach to investigate the dynamic trends of regional eco efficiency in china from 2003 to 2014 moreover a developed slacks based measure is utilized to decompose the performance fluctuations into resource environmental and economic efficiency then the key factors responsible for the changes in eco efficiency are explored using the global malmquist luenberger index the empirical results demonstrate an upward trend of eco efficiency in china during the study period this trend was high in eastern and northern areas but low in northwestern areas however it should be noted that some eco efficient regions still consume much land water and energy and emit much environmental pollutants in absolute terms the whole of china performs well on the economic front while resource and environmental performances are not encouraging particularly on environmental efficiency the eastern and northern regions have experienced the greatest advances in both resource and environmental efficiency while the undeveloped areas have not shown much progress which further widens the gaps between developed areas and undeveloped areas the decomposition of productivity growth indicates that technical progress is the decisive factor in promoting china s eco efficiency while decreasing management level is the major obstacle hampering the improvement in eco efficiency

estimating systemic risk in the international financial system this paper develops three distinct methods to quantify the risk of a systemic failure in the global banking system we examine a sample of 334 banks representing 80 of global bank equity in 28 countries around five global financial crises our results suggest statistically significant but economically small increases in systemic risk although policy responses are endogenous the low estimated probabilities suggest that the distress of central bankers regulators and politicians about the events we study could be overstated and that current policy responses to financial crises could be adequate to handle major macroeconomic events

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

transmission network planning under security and environmental constraints this paper explores the impact of co2 emission trading on capacity planning of electric power transmission systems two different models for annual emission costs are assumed the co2 emission price is modeled as a probability density function in the transmission network planning problem the monte carlo technique is deployed to simulate the co2 emission price volatility the transmission network planning problem is formulated as a mixed integer optimization whose objective is to minimize the sum of annual generator operating costs and annuitized transmission investment costs over different demand levels subject to n 1 network security constraints as well as operating limits on system components the overall problem is formulated within the framework of a linear dc optimal power flow incorporating binary decision variables to model the lumpy nature of transmission investment a linear model of losses is also proposed and included in the dc power flow model the proposed approach can be used to determine the most probable optimal transmission capacity the methodology is demonstrated through case studies simulated on the ieee 24 bus network

pricing default swaps empirical evidence in this paper we compare market prices of credit default swaps with model prices we show that a simple reduced form model outperforms directly comparing bonds credit spreads to default swap premiums we find that the model yields unbiased premium estimates for default swaps on investment grade issuers but only if we use swap or repo rates as proxy for default free interest rates this indicates that the government curve is no longer seen as the reference default free curve we also show that the model is relatively insensitive to the value of the assumed recovery rate

financial markets the real economy and self fulfilling uncertainties we develop a model of informational interdependence between financial markets and the real economy linking economic uncertainty to information production and aggregate economic activities in general equilibrium the mutual learning between financial markets and the real economy creates a strategic complementarity in their information production leading to self fulfilling surges in economic uncertainties in a dynamic setting our model characterizes self fulfilling uncertainty traps with two steady state equilibria and a two stage economic crisis in transitional dynamics

pricing credit derivatives with rating transitions we present a model for pricing risky debt and valuing credit derivatives that is easily calibrated to existing variables our approach expands a classical term structure model to allow for multiple rating classes of debt the framework has two salient features 1 it uses a rating transition matrix as the driver for the default process and 2 the entire set of rating categories is calibrated jointly which allows arbitrage free restrictions across rating classes as a bond migrates among them we illustrate the approach by applying it to price credit sensitive notes that have coupon payments linked to the rating of the underlying credit

market based transmission expansion planning restructuring and deregulation has exposed transmission planner to new objectives and uncertainties therefore new criteria and approaches are needed for transmission planning in deregulated environments a new market based approach for transmission planning in deregulated environments is presented in this paper the main contribution of this research is i introducing a new probabilistic tool named probabilistic locational marginal prices for computing the probability density functions of nodal prices ii defining new market based criteria for transmission expansion planning in deregulated environments and iii presenting a new approach for transmission expansion planning in deregulated environments using the above tool and criteria the advantages of this approach are i it encourages and facilitates competition among all participants ii it provides nondiscriminatory access to cheap generation for all consumers iii it considers all random and nonrandom power system uncertainties and selects the final plan after risk assessment of all solutions and iv it is value based and considers investment cost operation cost congestion cost load curtailment cost and cost caused by system unreliability the presented approach is applied to ieee 30 bus test system

network planning in unbundled power systems in this paper a new approach for network planning in unbundled power systems is presented the approach takes into account the desires of demand customers power producers system operator network owner s and regulator in network planning competition reliability flexibility of operation transmission expansion cost and environmental impacts are used as planning criteria in order to consider the importance degrees of stakeholders and planning criteria in network planning first importance degrees of stakeholders and planning criteria are determined by a presented new method then importance degrees of stakeholders and planning criteria are aggregated with appropriateness degrees of expansion plans to compute a fuzzy index for measuring the goodness of expansion plans the final plan is selected using the presented fuzzy risk assessment method the approach is applied to an eight bus test system

insider trading outside search and resource allocation why firms and society may disagree on insider trading restrictions we show that entrepreneurs may prefer to allow insider trading even when it is not socially optimal we examine a model in which an insider manager allocates resources on the basis of his private information and outside information conveyed through the secondary market price of the firm s shares if the manager is allowed to trade he will compete with informed outsiders reducing the equilibrium quality of outside information while the benefits to production of outside information are the same for society and entrepreneurs we show that the social and private costs are different thus entrepreneurs and society may disagree on the conditions under which insider trading restrictions should be imposed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

an experimental analysis of contingent capital with market price triggers we report an experiment that evaluates three market based regimes for triggering the conversion of contingent capital bonds into equity a fixed trigger regime where a price threshold triggers mandatory conversion a regulator regime where regulators make conversion decisions based on prices and a prediction market regime where regulators also observe a market that predicts conversion consistent with theory we observe inefficiencies and conversion errors in the fixed trigger and regulator regimes the prediction market somewhat improves the regulator s performance but inefficiencies and conversion errors persist the regulator regime has conversion errors over the widest range of shocks

price discovery in euro area sovereign credit markets and the ban on naked cds abstract the sovereign debt crisis in the euro area saw credit spreads on sovereign bonds and credit default swaps cds surge for a number of member states the rise in sovereign yields was accompanied by a significant increase in sovereign cds market activity this pattern raised concerns that destabilising speculation via outright short selling of cds so called naked cds was behind the increase in bond yields in response policy makers introduced a ban on naked cds trading we investigate the effect of the ban on the price discovery process of sovereign credit risk contrasting results for the post ban period with those obtained prior to the ban we use intraday data on sovereign cds and bonds across a number of euro area countries our first main finding is that the cds market dominates the bond market in terms of price discovery that is cds premia in most cases adjust quicker to reflect new information than bond spreads this result holds also when taking into account transaction costs our second main finding is that the ban on short selling did not alter price discovery dynamics or reduce the efficiency of the market finally we find that prior to the ban cds spreads were persistently higher than bond credit spreads even after controlling for transaction costs this points to the presence of market frictions that limit the ability of arbitrage forces to fully close pricing gaps between the two markets however these pricing discrepancies were in many cases largely eliminated following the introduction of the ban

efficiency evaluation and dynamic evolution of china s regional green economy a method based on the super pebm model and dea window analysis abstract given the current circumstances of increasingly serious resource consumption and environmental pollution the development of china s green economy will profoundly impact the nation s future economic prosperity and even global economic development based on panel data from 2008 to 2017 this paper measures the green economic efficiency gee of chinese regions and analyzes its dynamic evolution using time series based on a novel data envelopment analysis dea model using environmental dea techniques this paper introduces the super pebm ebm based on pearson correlation coefficient model which is developed from the epsilon based measure ebm model and combines super pebm with the window analysis method firstly environmental dea technology is used to analyze gee at the regional level in china secondly based on panel data the window analysis method is used to analyze the regional differences of china s regional gee finally the development trend of china s regional gee in different time windows is obtained by combining the super pebm model and window analysis the empirical analysis results using panel data for regions in china from 2008 to 2017 show that 1 the overall gee of china is slowly increasing and the regional differences are still significant and 2 the improvement of gee can help to reduce regional differences

malmquist productivity index decompositions a unifying framework in two widely cited but unpublished working papers simar and wilson 1998 and zofio and lovell 1998 proposed an alternative decomposition of the malmquist productivity index which retained what seemed to be the strongholds of previous proposals with regard to the contribution of technological and efficiency change to productivity change namely a technical change term with regard to the best practice variable returns to scale vrs technology which is to be found in ray and desli 1997 and a scale efficiency change term that illustrates a firm s situation with regard to optimal scale benchmark technology fare et al 1994 attaining this objective required the introduction of an additional term in the malmquist productivity index decomposition which would reflect the scale bias of technical change it is our objective to provide economic rationale for this term within a theory of production context the existing decompositions and recent articles that further elaborate on this issue the ide

special repo rates this article provides the causes and symptoms of special repo rates in a competitive market for repurchase agreements a repo rate is in effect an interest rate on loans collateralized by a specific instrument a special is a repo rate significantly below prevailing market riskless interest rates this article shows that specials can occur when those owning the collateral are inhibited whether from legal or institutional requirements or from frictional costs from supplying collateral into repurchase agreements specialness increases the equilibrium price for the underlying instrument by the present value of savings in borrowing costs associated with the repo specials this article characterizes competitive repurchase or repo markets and the equilibrium relationship between repo rates and the underlying cash market prices repurchase markets are often called financing markets since they are effectively vehicles for collateralized borrowing that are often used to finance the purchase of the underlying collateral this article provides causes and effects of specials meaning specific repo rates significantly below prevailing market interest rates for loans of similar maturity and credit risk the example of united states treasury instruments is emphasized because of the extensive use of the treasury repo market as a means of hedging against or speculating on changes in u s interest rates and because of the high incidence of specials in treasury repo rates numerous specific instru

systemic risk measures the simpler the better abstract this paper estimates and compares two groups of high frequency market based systemic risk measures using european and us interbank rates stock prices and credit derivatives data from 2004 to 2009 measures belonging to the macro group gauge the overall tension in the financial sector and micro group measures rely on individual institution information to extract joint distress we rank the measures using three criteria i granger causality tests ii gonzalo and granger metric and iii correlation with an index of systemic events and policy actions we find that the best systemic measure in the macro group is the first principal component of a portfolio of credit default swap cds spreads whereas the best measure in the micro group is the multivariate densities computed from cds spreads these results suggest that the measures based on cdss outperform measures based on interbank rates or stock market prices

defaulted bonds demand supply and performance 1987 1992 estimates of the market value of total private and public defaulted and distressed debt are as high as 200 billion in 1990 with a slight decline to about 175 billion in 1992 the supply can be expected to shrink in the nearfuture as defaults and bankruptcies by large us companies appear to have peaked at the same time the demand for such securities is likely to remain fairly constant as long as they can offer competitive returns

runs versus lemons information disclosure and fiscal capacity we study the optimal use of disclosure and fiscal backstops during financial crises providing information can reduce adverse selection in credit markets but negative disclosures can also trigger inefficient bank runs in our model governments are thus forced to choose between runs and lemons a fiscal backstop mitigates the cost of runs and allows a government to pursue a high disclosure strategy our model explains why governments with strong fiscal positions are more likely to run informative stress tests and paradoxically how they can end up spending less than governments that are more fiscally constrained

the informational content of prices when policy makers react to financial markets abstract when can policy makers use policy relevant information from financial market prices and how does policy affect price informativeness i analyze a novel setting with noise where a policy maker tries to infer information about a state variable from prices to improve policy decisions and policy in turn affects asset values i derive a necessary and sufficient condition for the possibility of information revelation in equilibrium which might not be possible if the policy reaction to prices punishes traders for revealing their information if the policy maker is uninformed then policy objectives do not change price informativeness but they do if the policy maker has independent information about the state i also analyze policy maker transparency and find that policy makers with objectives having a large impact on asset values should publish their information before trading to make prices more informative in other cases intransparency can be optimal

limited investment capital and credit spreads using proprietary credit default swap cds data i investigate how capital shocks at protection sellers impact pricing in the cds market seller capital shocks measured as cds portfolio margin payments account for 12 of the time series variation in weekly spread changes a significant amount given that standard credit factors account for 18 during my sample in addition seller shocks possess information for spreads that is independent of institution wide measures of constraints these findings imply a high degree of market segmentation and suggest that frictions within specialized financial institutions prevent capital from flowing into the market at shorter horizons

how does income inequality affect energy efficiency empirical evidence from 33 belt and road initiative countries abstract at present income distribution and environmental pollution are serious issues faced by the belt and road initiative bri countries and exploring the impact of income inequality on energy efficiency is meaningful for the sustainability of bri countries using the panel data of 33 bri countries from 2000 to 2016 we first evaluate the energy efficiency of the countries by dynamic dea model and then adopt the tobit regression model to investigate the nonlinear effect of income inequality on energy efficiency the results suggest that first during 2000 2016 the overall energy efficiency of 33 bri countries is relatively low falling to 0 38 while the overall energy efficiency of high income bri countries is much higher than that of the middle and low income bri countries second the average energy efficiency of the bri countries has declined since year 2013 third there is an inverted u type effect of income inequality on energy efficiency in the whole sample but the impact of income inequality on energy efficiency is heterogeneous for countries at different income levels specifically in high income bri countries income inequality shows a u type effect on energy efficiency while in middle and low income bri countries the relationship between income inequality and energy efficiency is an inverted u type moreover economic growth positively impacts the energy efficiency while industrialization and energy structure negatively influence the energy efficiency

eco efficiency of the western taiwan straits economic zone an evaluation based on a novel eco efficiency model and empirical analysis of influencing factors abstract obtaining the most economic benefits while using the least resources and causing the least environmental damage is an urgent and key problem in achieving sustainable development the concept of eco efficiency provides a comprehensive perspective for observing and solving this problem this paper proposes an extended data envelopment analysis model named the win us sbm as a comprehensive eco efficiency evaluation method that can accommodate undesirable outputs all the identification problems of decision making units dmus possible slacks of variables and the problems of an insufficient number of available dmus and intertemporal comparability china s western taiwan straits economic zone wts economic zone is an important regional economic growth center by applying win us sbm and arcgis software we investigated data on the temporal and spatial evolution characteristics of eco efficiency in the wts economic zone for the years 2009 2016 later the global malmquist luenberger index was used to decompose the sources of growth in eco efficiency finally the main driving factors of eco efficiency were explored through a tobit regression analysis the empirical results show that 1 the overall eco efficiency of the wts economic zone had greatly improved increasing by 11 46 annually and the cumulative growth rate of eco efficiency was 110 84 from 2009 to 2016 2 the eastern area had the highest average eco efficiency followed by the western area and the middle area in that order also the growth rate of the middle area ranked first 16 68 whereas the eastern area had the slowest growth in eco efficiency 7 22 3 on the whole the growth of eco efficiency was driven mainly by technological progress and was restricted by the decrease in management level which implies that policy makers should focus on improving management and technical levels 4 high levels of economic development population density market openness and industrial structure had positive effects on the eco efficiency of the wts economic zone whereas energy intensity and expenditure on science and technology had negative impacts

inflation forecasts and monetary policy proposals for inflation targeting as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long run inflation target an interesting possibility is that the central bank might target current private sector forecasts of inflation either those made explicitly by professional forecasters or those implicit in asset prices we address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private sector forecasts as a guide to policy actions in a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium and that policies approximating strict inflation forecast targeting are likely to have undesirable properties we also show that economies with more general forecast based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria we conclude that although private sector forecasts may contain information useful to the central bank ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

the real effects of financial markets the impact of prices on takeovers using mutual fund redemptions as an instrument for price changes we identify a strong effect of market prices on takeover activity the trigger effect an interquartile decrease in valuation leads to a seven percentage point increase in acquisition likelihood relative to a 6 unconditional takeover probability instrumentation addresses the fact that prices are endogenous and increase in anticipation of a takeover the anticipation effect our results overturn prior literature that finds a weak relation between prices and takeovers without instrumentation these findings imply that financial markets have real effects they impose discipline on managers by triggering takeover threats does a low market valuation make a firm a takeover target in theory if acquisition prices are related to market prices acquirers can profit from taking over a firm whose market value is low relative to its peers due either to mispricing or mismanagement and restore it to its potential indeed in practice acquirers and other investors appear to track a firm s valuation multiples for indications on the potential for acquisition and managers strive to maintain high market valuations to prevent a hostile takeover understanding whether such a link exists is important because if so this would suggest that the market is not a sideshow but rather exerts a powerful disciplinary effect on firm management as suggested by marris 1964 manne 1965 a ndjensen 1993 despite the above logic existing empirical studies on takeovers fail to systematically uncover a meaningful relationship between market valuations

the real effects of short selling constraints we use a regulatory experiment regulation sho that relaxes short selling constraints on a random sample of u s stocks to test whether capital market frictions have an effect on stock prices and corporate decisions we find that an increase in short selling activity causes prices to fall and that small firms react to these lower prices by reducing equity issues and investment these results not only provide evidence that short selling constraints affect asset prices but also confirm that short selling activity has a causal impact on financing and investment decisions

incorporating equity market information into supervisory monitoring models we examine whether equity market variables such as stock returns and equity based default probabilities are useful to u s bank supervisors for assessing the condition of domestic bank holding companies we develop a model of supervisory ratings that combines supervisory and equity market information we find that the model s forecasts anticipate supervisory rating changes by up to four quarters relative to simply using supervisory variables the inclusion of equity market variables in the model does not improve forecast accuracy however we argue that equity market information should still be useful for forecasting supervisory ratings and should be incorporated into supervisory monitoring models

using market information in prudential bank supervision a review of the u s empirical evidence in principle market and government supervision provide alternative devices for controlling governing any type of corporation most national governments have instituted nonmarket regulatory mechanisms for banking firms on the grounds that market based mechanisms do not adequately discipline banks but what evidence supports this assessment why must governments assure bank solvency but not the solvency of other firms government oversight naturally displaces private efforts to evaluate and control financial firms moreover if the banking business changes over time as it assuredly has in the past decade or two the best combination of government and private supervision may change concurrently this paper reviews and evaluates the growing empirical literature on private investors abilities to assess the financial condition of banking firms the evidence supports the proposition that market investors and analysts could reasonably provide a greater proportion of corporate governance services for large traded u s financial firms

financial system architecture this article builds a theory of financial system architecture we ask what is a financial market what is a bank and what determines the economic role of each starting with basic assumptions about primitives the types of agents and the nature of the informational asymmetries we provide a theory that explains which agents coalesce to form banks and which trade in the capital market it is shown that borrowers of higher observable qualities access the financial market moreover a financial system in its infancy will be bank dominated and increased financial market sophistication diminishes bank lending article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

on the possibility of informative equilibria in futures markets with feedback we study the existence of equilibria and the information content of prices in futures markets where the probability of future payoffs can be altered by an intervening agent who acts in response to the market price hence creating a feedback effect we focus on the market with the simplest possible structure traders betting on the occurrence of a future event by buying or selling arrow debreu securities one dollar claims contingent on a binary outcome we find that in the presence of feedback i a rational expectations equilibrium may not exist ii the market price may decline in response to information that is ex ante more favorable to the occurrence of the underlying event iii an equilibrium that reveals no information may obtain thus feedback from an intervening agent materially alters the way in which price responds to information and potentially undermines the viability of the market itself

observing and shaping the market the dilemma of central banks while the central bank observes the market activity to assess economic fundamentals it shapes the market outcome through its policy interventions the more the central bank influences the market the more it spoils the informational content of economic aggregates how should the central bank act and communicate when it derives its information from observing the market this paper analyses the optimal central bank s action and disclosure under endogenous central bank s information for three operational frameworks pure communication action and communication and signaling action when the central bank takes an action it would be optimal for the central bank to be fully opaque to prevent its disclosure from deteriorating the information quality of market outcomes however in the realistic case where central bank s action is observable it may be optimal to refrain from implementing any action

value based transmission expansion planning of hydrothermal systems under uncertainty transmission planning studies in hydrothermal systems deal with complex issues two include 1 the need for a robust grid that can accommodate a large number of economic dispatch patterns caused by differing hydrological conditions in the river basins and 2 the high cost of grid reinforcements due to the large distance from hydro plants to load centers and the required n l security criterion it is thus necessary to consider the tradeoff between supply reliability and reinforcement cost the resulting planning problem is formulated as a large scale mixed integer nonlinear optimization model the objective function is to minimize the sum of investment costs and expected load shedding costs the constraints include linearized power flow equations limits on circuit flows for all combinations of economic dispatch points which capture hydrological variation and circuit contingencies which capture supply reliability this paper describes a new solution scheme for this problem that is based on two techniques 1 the extension of a binary disjunctive technique which transforms the integer nonlinear problem into a linear one and 2 screening strategies which allow a judicious choice of contingencies and candidate circuits planning studies for brazil and bolivia are presented and discussed

using stock price information to regulate firms this paper examines the role of the information contained in stock prices in the regulation of privatized firms stock prices contain noisy but unbiased information about firm s future prospects that regulators can use to decide on some regulatory policies the main argument developed is that the observation of stock price movements reduces the incentives of regulators to develop their own monitoring technologies and can allow them to commit to relatively lighthanded regulations this protects firm s investments in cost reduction activities and can increase ex ante welfare this article is concerned with the analysis of the interactions between the public listing of regulated companies and their regulation the central idea is that public listing modifies the information structure of regulators and thus the regulation implemented some evidence can motivate this view

informational feedback adverse selection and optimal disclosure policy faceless trading in a secondary stock market not only redistributes wealth among investors but also generates information that feeds back to real decisions using this observation we re evaluate the leveling the playing field rationale for disclosure to secondary stock markets by partially preempting traders information advantage established from information acquisition disclosure reduces private incentives to acquire information resulting in two opposite effects on firm value on one hand this narrows the information gap between informed and uninformed traders and improves liquidity of firm shares on the other hand this reduces the informational feedback from the stock market to real decisions this tradeoff determines the optimal disclosure policy the model explains why firm value can be higher in an environment that simultaneously promotes disclosure and private information production and why growth firms are endogenously more opaque than value firms

trading frenzies and their impact on real investment we study a model in which a capital provider learns from the price of a firm s security in deciding how much capital to provide for new investment this feedback effect from the financial market to the investment decision gives rise to trading frenzies in which speculators all wish to trade like others generating large pressure on prices coordination among speculators is sometimes desirable for price informativeness and investment efficiency but speculators incentives push in the opposite direction so that they coordinate exactly when it is undesirable we analyze the effect of various market parameters on the likelihood of trading frenzies to arise

estimating the costs of issuer paid credit ratings we compare the stability and timeliness of credit ratings produced by a traditional issuer paid rating agency moody s investors service and a subscriber paid rater rapid ratings moody s ratings exhibit less volatility but are slower to identify default risk we control for moody s aversion to ratings volatility and still find its ratings lag rapid ratings more importantly accuracy ratios indicate that rapid ratings provides a better ordinal ranking of credit risk we quantify the loss avoidance associated with rapid ratings signals to estimate costs associated with regulatory and contractual systems based on issuer paid ratings the author 2013 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

financial indicators signaling correlation changes in sovereign bond markets abstract we use a smooth transition conditional correlation garch stcc garch model applied to the euro area monetary policy rates and sovereign yields of italy spain and germany at 5 year maturity to estimate the threshold level of the signals above which the sovereign bond market moves to a crisis regime we show that the threshold to a crisis regime for italy and spain is reached when i their 5 year sovereign yield spreads amount to about 90 basis points ii their 5 year cds spreads amount to about 155 basis points or iii the 5 year spread between the kreditanstalt fur wiederaufbau kfw bond and the german bund amounts to about 30 40 basis points using impulse responses we find that the stcc garch with the kfw bund spread has leading properties a feature corroborated by the fact that this indicator suggested a shift to a crisis regime already in august 2007 and has been signaling an improvement of the situation already in the autumn of 2012 an out of sample forecast of the stcc garch model is also provided which is both a novelty and a further robustness check for the stability of the model

the impact of a new term auction facility on libor ois spreads and volatility transmission between money and mortgage markets during the subprime crisis abstract during the subprime crisis the u s federal reserve was concerned about widening spreads between overnight interbank lending rates such as the overnight index swap ois and term london interbank offer rate libor among the tools it used to counter the impact of the crisis the innovative term auction facility taf attracted much attention we investigate the impact of the taf on the libor ois spread we find that the taf has clear initial and sustained expectation effects on the three month libor ois spread but no real initial or short term funding effects which casts doubt on the usefulness of the taf in reducing risk spreads since the subprime crisis also spilled across the interbank commercial paper and jumbo mortgage markets we further examine the lead lag relation between libor ois commercial paper and jumbo spreads and the volatility transmission effects between them for the period before the crisis we find that the three markets behave largely independently for the subprime crisis period however we find multidirectional lead lag relations and one way volatility transmission between these markets

systemic risk and bank size abstract in this paper we analyse firm level systemic risk for us and european banks from 2004 to 2012 we observe that common systemic risk indicators are primarily driven by firm size which implies an overriding concern for too big to fail institutions however smaller banks may still pose considerable systemic threats as exemplified by the northern rock debacle in 2007 by introducing a simple standardisation we obtain new risk measures that often prove to be superior predictors of financial distress during the 2007 2009 subprime crisis we conclude that the new measures could be a valuable addition to the existing indicators employed in basel iii to identify systemically important banks

the intersection of market and credit risk abstract economic theory tells us that market and credit risks are intrinsically related to each other and not separable we describe the two main approaches to pricing credit risky instruments the structural approach and the reduced form approach it is argued that the standard approaches to credit risk management creditmetrics creditrisk and kmv are of limited value when applied to portfolios of interest rate sensitive instruments and in measuring market and credit risk empirically returns on high yield bonds have a higher correlation with equity index returns and a lower correlation with treasury bond index returns than do low yield bonds also macro economic variables appear to influence the aggregate rate of business failures the creditmetrics creditrisk and kmv methodologies cannot reproduce these empirical observations given their constant interest rate assumption however we can incorporate these empirical observations into the reduced form of jarrow and turnbull 1995b drawing the analogy risk 5 63 70 model here default probabilities are correlated due to their dependence on common economic factors default risk and recovery rate uncertainty may not be the sole determinants of the credit spread we show how to incorporate a convenience yield as one of the determinants of the credit spread for credit risk management the time horizon is typically one year or longer this has two important implications since the standard approximations do not apply over a one year horizon first we must use pricing models for risk management some practitioners have taken a different approach than academics in the pricing of credit risky bonds in the event of default a bond holder is legally entitled to accrued interest plus principal we discuss the implications of this fact for pricing second it is necessary to keep track of two probability measures the martingale probability for pricing and the natural probability for value at risk we discuss the benefits of keeping track of these two measures

the going public decision and the development of financial markets this paper explores the linkages between stock price efficiency the choice between private and public financing and the development of capital markets in emerging economies generally the advantage of public financing is high if costly information is diverse and cheap to acquire and if investors receive valuable information without cost the value of public firms generally depends on public market size which implies that there can be a positive externality associated with going public so that an inferior equilibrium can exist where too few firms go public the model is consistent with empirical observations on financial market development

an integrated pricing model for defaultable loans and bonds abstract in recent years credit risk has played a key role in risk management issues practitioners academics and regulators have been fully involved in the process of developing studying and analysing credit risk models in order to find the elements which characterize a sound risk management system in this paper we present an integrated model based on a reduced pricing approach for market and credit risk its main features are those of being mark to market and that the spread term structure by rating class is contingent on the seniority of debt within an arbitrage free framework we introduce issues such as the integration of market and credit risk the use of stochastic recovery rates and recovery by seniority moreover we will characterize default risk by estimating migration risk through a mortality rate actuarial based approach the resultant probabilities will be the base for determining multi period risk neutral transition probability that allow pricing of risky debt in the trading and banking book

on the design of contingent capital with a market trigger contingent capital cc which intends to internalize the costs of too big to fail in the capital structure of large banks has been under intense debate by policy makers and academics we show that cc with a market trigger in which direct stake holders are unable to choose optimal conversion policies does not lead to a unique competitive equilibrium unless value transfer at conversion is not expected ex ante the no value transfer restriction precludes penalizing bank managers for taking excessive risk multiplicity or absence of an equilibrium introduces the potential for price uncertainty market manipulation inecient capital allocation and frequent conversion errors these results point to the need to explore alternative designs of a prudential capital structure for banks jel classication

the value of creditor control in corporate bonds this paper introduces a measure that captures the premium in bond prices that is due to the value of creditor control we estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swap cds contracts we find empirically that this premium increases as firm credit quality decreases and around important credit events such as defaults bankruptcies and covenant violations the increase is greatest for bonds most pivotal to changes in control changes in bond and cds liquidity do not appear to drive increases in the premium

networks and systemic risk in the financial system the complex web of exposures and interlinkages across the financial system highlights the relevance of network analysis in understanding systemic risk and guiding the design of financial regulation this paper discusses how network models and those based on epidemiological approaches in particular offer a compelling description of the structure of real world financial systems and shed light on different contagion mechanisms seen during the global financial crisis we also review how these insights may inform macroprudential risk assessment and policy in the areas of stress testing the financial system and the regulation of systemically important institutions the role of non bank financial intermediation and social networks in shaping financial system risk is also briefly considered

the information content of bank exam ratings and subordinated debt prices do supervisory examinations of large commercial banking firms produce useful information not already reflected in market prices to investigate this question we apply a new research methodology to data on bank exam ratings and the subordinated debt risk spreads of their parent holding companies we find that government exams do produce new value relevant information that debenture prices do not immediately reflect this information and that the market prices the likely regulatory actions implied by this information these results have implications for market versus regulatory discipline at large banking firms and for proposals to make subordinated debt mandatory for these firms

the delivery option in credit default swaps abstract under standard assumptions the reduced form credit risk model is not capable of accurately pricing the two fundamental credit risk instruments bonds and credit default swaps cds simultaneously using a data set of euro denominated corporate bonds and cds our paper quantifies this mispricing by calibrating such a model to bond data and subsequently using it to price cds resulting in model cds spreads up to 50 lower on average than observed in the market an extended model is presented which includes the delivery option implicit in cds contracts emerging since a basket of bonds is deliverable in default by using a constant recovery rate standard models assume equal recoveries for all bonds and hence zero value for the delivery option contradicting this common assumption case studies of chapter 11 filings presented in the paper show that corporate bonds do not necessarily trade at equal levels following default our extension models the implied expected recovery rate of the cheapest to deliver bond and applied to data largely eliminates the mispricing calibrated recovery values lie between 8 and 47 for different obligors exhibiting strong variation among rating classes and industries a cross sectional analysis reveals that the implied recovery parameter depends on proxies for the delivery option primarily the number of available bonds and bond pricing errors no evidence is found for a direct influence of the bid ask spread notional amount coupon or rating used as proxies for bond market liquidity

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

coco issuance and bank fragility abstract the promise of contingent convertible capital securities cocos as a bail in solution has been the subject of considerable theoretical analysis and debate but little is known about their effects in practice we undertake the first comprehensive empirical analysis of bank coco issues a market segment that comprises over 730 instruments totaling 521 billion four main findings emerge 1 the propensity to issue a coco is higher for larger and better capitalized banks 2 coco issues result in a statistically significant decline in issuers cds spread indicating that they generate risk reduction benefits and lower costs of debt this is especially true for cocos that convert into equity have mechanical triggers and are classified as additional tier 1 instruments 3 cocos with only discretionary triggers do not have a significant impact on cds spreads and 4 coco issues have no statistically significant impact on stock prices except for principal write down cocos with a high trigger level which have a positive effect

credit swap valuation this review of the pricing of credit swaps a form of derivative security that can be viewed as default insurance on loans or bonds begins with a description of the credit swap contract turns to pricing by reference to spreads over the risk free rate of par floating rate bonds of the same quality and then considers model based pricing the role of asset swap spreads as a reference for pricing credit swaps is also considered

information production dilution costs and optimal security design abstract we investigate the problem of a firm wishing to finance a project by issuing securities under asymmetric information we find that when outside investors can produce noisy information on the firm s quality the degree of information asymmetry resulting in equilibrium is endogenous and depends on the information sensitivity of the security issued thus in contrast to the prediction of the pecking order theory see e g myers and majluf j financial econom 13 1984 187 a security with low sensitivity to private information such as debt does not always dominate one with high information sensitivity such as equity a firm s preference for equity rather than debt depends on the costs of information production the precision of the information production technology and the extent of the information asymmetry we also study the optimal security design problem and find that depending on the cost and precision of the information production technology risky debt or a composite security with a convex payoff emerges as optimal securities

merger negotiations with stock market feedback do preoffer target stock price runups increase bidder takeover costs we present model based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies rational deal anticipation implies a relation between target runups and markups offer value minus runup that is greater than minus one for one and inherently nonlinear if merger negotiations force bidders to raise the offer with the runup a costly feedback loop where bidders pay twice for anticipated target synergies markups become strictly increasing in runups large sample tests support rational deal anticipation in runups while rejecting the costly feedback loop

assessing eco efficiency through the dea analysis and decoupling index in the latin america countries abstract this study was developed according to a two step approach in the first step we provide an investigation of the changes in eco efficiency under constant and variable return to scale while on a second step the evaluation of the decoupling elasticity will be given the impacts of energy economic and environmental determinants inputs on the performance indicators of eco efficiency were calculated as the inverse of the carbon intensity ratio of the gdp over the co2 emissions both from the world development indicators database the changes in eco efficiency and the decoupling elasticity between co2 emissions and economic growth changes data was used for 16 latin america countries according to five year periods from 1994 to 2013 for all the five time span considered it is worth noting that the degree of technical efficiency for the latin america countries is lower than the degree of technological efficiency thus indicating that a portion of the overall inefficiency is due to the fact that these countries are producing below the production frontier rather than to an inefficient use of technology on average the results have confirmed that the technological scale change in energy production is the dominant factor influencing the optimal production frontier in the sample of countries under analysis complementarily according to the mixed results from the decoupling analysis we may conclude that the increase decrease of the co2 per capita emissions was due to other economic and environmental factors rather than to a negative positive effect of the gdp growth rate

crises and capital requirements in banking we analyze a general equilibrium model in which there is both adverse selection of and moral hazard by banks the regulator can screen banks prior to giving them a licence audit them ex post to learn the success probability of their projects and impose capital adequacy requirements capital requirements combat moral hazard when the regulator has a strong screening reputation and they otherwise substitute for screening ability crises of confidence can occur only in the latter case and contrary to conventional wisdom the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks

on equilibrium when contingent capital has a market trigger a correction to sundaresan and wang journal of finance 2015 this paper identifies an error in sundaresan and wang 2015 hereafter sw that invalidates its theorem 1 the paper develops a model of contingent capital cc with a stock price trigger that is consistent with sw s framework and yields closed form solutions for stock and cc prices yet the model shows that unique stock price equilibria exist for a broader range of cc contractual terms than those required by sw specifically when conversion terms benefit cc investors and penalize shareholders a unique equilibrium can exist rather than the multiple equilibria stated in sw

term structures of credit spreads with incomplete accounting information we study the implications of imperfect information for term structures of credit spreads on corporate bonds we suppose that bond investors cannot observe the issuer s assets directly and receive instead only periodic and imperfect accounting reports for a setting in which the assets of the firm are a geometric brownian motion until informed equityholders optimally liquidate we derive the conditional distribution of the assets given accounting data and survivorship contrary to the perfect information case there exists a default arrival intensity process that intensity is calculated in terms of the conditional distribution of assets credit yield spreads are characterized in terms of accounting information generalizations are provided

local volatility and the recovery rate of credit default swaps abstract credit default swap cds spreads can only be decomposed into the probability of default and the loss given default by imposing some structure employing a hybrid binomial tree for equities and a recovery function das and hanouna 2009 obtain accurate estimates for cds spreads by fitting the model to historical equity volatilities we extend their approach by including the full implied volatility surface developing an implied binomial tree with a jump to default based on extending the derman and kani 1994 tree we then evaluate the effect of including the full volatility surface on the implied cds recovery rate

credit risk in private debt portfolios default loss severity and average loss rates for a large sample of privately placed bonds are presented and compared with loss experience for publicly issued bonds the chance of very large portfolio losses is estimated and some determinants of such losses are analyzed results show ex ante riskier classes of private debt perform better on average than public debt both diversification and the riskiness of individual portfolio assets influence the bad tail of the portfolio loss distribution private placements are similar to corporate loans in that both are monitored private debt the results are thus relevant to management and securitization of private debt portfolios generally more than half of nonfinancial corporate debt finance is iss ued privately and decisions of the financial intermediaries that invest in such debt depend importantly on its credit risk regulators of such institutions are similarly attentive to portfolio credit risk and it is an important consideration in the design of securitizations of pools of private debt in spite of its importance little is known empirically about private debt credit risk especially ex ante risk as a function of portfolio characteristics many studies have examined the loan portfolio performance of banks thrifts and insurance companies but the ex ante risk characteristics of the portfo

market based corrective actions many economic agents take corrective actions based on information inferred from market prices of firms securities examples include directors and activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions we provide an equilibrium analysis of such situations in light of a key problem if agents use market prices when deciding on corrective actions prices adjust to reflect this use and potentially become less revealing we show that market information and agents information are complementary and discuss measures that can increase agents ability to learn from market prices the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

manipulation and the allocational role of prices it is commonly believed that prices in secondary financial markets play an important allocational role because they contain information that facilitates the efficient allocation of resources this paper identifies a limitation inherent in this role of prices it shows that the presence of a feedback effect from the financial market to the real value of a firm creates an incentive for an uninformed trader to sell the firm s stock when this happens the informativeness of the stock price decreases and the beneficial allocational role of the financial market weakens the trader profits from this trading strategy partly because his trading distorts the firm s investment we therefore refer to this strategy as manipulation we show that trading without information is profitable only with sell orders driving a wedge between the allocational implications of buyer and seller initiated speculation and providing justification for restrictions on short sales

presidential address asset price dynamics with slow moving capital i describe asset price dynamics caused by the slow movement of investment capital to trading opportunities the pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade such as search costs for trading counterparties or time to raise capital by intermediaries i discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions which subsided afterward after presenting examples of price reactions to supply shocks in normal market settings i offer a simple illustrative model of price dynamics associated with slow moving capital due to the presence of inattentive investors i address the implications for asset price dynamics of the apparent slow movement of investment capital to trading opportunities the arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets for example an electronic limit order book market for equities or by months in other markets such as that for catastrophe risk insurance accordingly prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital and thus risk bearing capacity that is immediately available to absorb a shock on short notice such a price impact is substantially reversed over time as additional capital becomes available the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement such as search costs for trading

subordinated debt market discipline and bank risk this paper demonstrates that subordinated debt subdebt thereafter regulation can be an effective mechanism for disciplining banks by reducing the chance that managers of distressed banks can take value destroying actions to benefit themselves subdebt regulation may encourage banks to lower asset risk moreover subdebt regulation and bank capital requirements can be complements for alleviating the banks moral hazard problems to make subdebt regulation effective regulators may need impose ceilings on the interest rates of subdebt prohibit collusion between banks and subdebt investors and require subdebt to convert into the issuing bank s equity when the government provides assistance to the bank

dealing with dealers sovereign cds comovements abstract we show that sovereign cds that have common dealers tend to be more correlated especially when the dealers display similar quoting activity in those contracts over time this commonality in dealers activity is a powerful driver of cds return comovements over and above fundamental similarities between countries including default liquidity and macro factors we posit that the mechanism causing the excess correlation is the buying pressure faced by cds dealers for credit enhancements and regulatory capital reliefs an instrumental variable analysis helps alleviate the endogeneity concerns in our analysis

bond yields and the federal reserve bond yields respond to policy decisions by the federal reserve and vice versa to learn about these responses i model a high frequency policy rule based on yield curve information and an arbitrage free bond market in continuous time the fed s target is a pure jump process jump intensities depend on the state of the economy and the meeting calendar of the federal open market committee the model has closed form solutions for yields as functions of a few state variables introducing monetary policy helps to match the whole yield curve because the target is an observable state variable that pins down its short end and introduces important seasonalities around fomc meetings the volatility of yields is snake shaped which the model explains with policy inertia the policy rule crucially depends on the two year yield and describes fed policy better than taylor rules

productivity growth technical progress and efficiency change in industrialized countries this paper analyzes productivity growth in 17 oecd countries over the period 1979 1988 a nonparametric programming method activity analysis is used to compute malmquist productivity indexes these are decomposed into two component measures namely technical change and efficiency change we find that u s productivity growth is slightly higher than average all of which is due to technical change japan s productivity growth is the highest in the sample with almost half due to efficiency change jel c43 d24 in this paper we apply recently developed

contingent convertibles with stock price triggers the case of perpetuities initial proposals for contingent convertibles cocos envisioned that these bonds would convert to equity when the issuing bank s stock price declined to a prespecified trigger subsequent research has claimed that doing so causes the stock price to have multiple equilibria or no equilibrium we show that when cocos are perpetuities which characterizes most actual cocos a unique stock price equilibrium exists except under unrealistic conditions unique equilibria occur when conversion favors or disfavors coco investors when cocos convert to equity or are written down and when cocos are callable we also analyze a bank s risk choices before and after conversion received november 29 2016 editorial decision july 15 2018 by editor itay goldstein

feedback effects and asset prices feedback effects from asset prices to firm cash flows have been empirically documented this finding raises a question for asset pricing how are asset prices determined if price affects fundamental value which in turn affects price in this environment by buying assets that others are buying investors ensure high future cash flows for the firm and subsequent high returns for themselves hence investors have an incentive to coordinate which may generate self fulfilling beliefs and multiple equilibria using insights from global games we pin down investors beliefs analyze equilibrium prices and show that strong feedback leads to higher excess volatility

multi stage flexible expansion co planning under uncertainties in a combined electricity and gas market natural gas is an important fuel source in the power industry electricity and natural gas are both energy that can be directly consumed to improve the overall efficiency of the energy infrastructure it is imperative that the expansion of gas power plants electricity transmission lines and gas pipelines can be co planned the co planning process is modeled as a mixed integer nonlinear programming problem to handle conflicting objectives simultaneously we propose a novel model to identify the optimal co expansion plan in terms of social welfare to evaluate the robustness of plans under different scenarios the flexibility criterion is used to identify each plan s adaptation cost to uncertainties such as demand growth fuel cost and financial constraints etc we developed a systematic and comprehensive planning model to understand develop and optimize energy grids in order to reach higher social welfare and is therefore of great importance in terms of supporting and guiding investment decisions for the power and gas industry meanwhile we use the sequential importance sampling sis to perform scenario reduction for achieving a higher computational efficiency a comprehensive case study on the integrated ieee 14 bus and a test gas system is conducted to validate our approach

transparency in the financial system rollover risk and crises we present a theory of optimal transparency when banks are exposed to rollover risk disclosing bank specific information enhances the stability of the financial system during crises but has a destabilizing effect in normal economic times thus the regulator optimally increases transparency during crises under this policy however information disclosure signals a deterioration of economic fundamentals which gives the regulator ex post incentives to withhold information this commitment problem precludes a disclosure policy that provides ex ante optimal insurance against aggregate shocks and can result in excess opacity that increases the likelihood of a systemic crisis

the anatomy of sovereign risk contagion the channels for the cross border propagation of sovereign risk in the international sovereign debt market are analysed identifying sovereign credit events as extraordinary jumps in cds spreads we distinguish between the immediate effects of such events and their longer term spillover effects to analyse fast and furious contagion we use daily cds data to conduct event studies around a total of 89 identified credit events in a global country sample to analyse slow burn spillover effects we apply a multifactor risk model distinguishing between global and regional risk factors we find that fast and furious contagion has been primarily a regional phenomenon whilst slow burn spillover effects can often be global in scope especially those of the recent european debt crisis the global risk factors are found to be driven by investor risk appetites and debt levels whilst the regional factors depend on economic fundamentals of countries within a region

congestion driven transmission planning considering the impact of generator expansion this paper presents a multi year transmission expansion planning tep model which considers the transmission congestion and the impact of generation investment cost in the planning horizon the benders decomposition approach is utilized which decomposes tep into a master problem and two subproblems representing security and optimal operation the operation cost due to congestion occ is considered in the proposed model given that the congestion level is a proper criterion for measuring the degree of competitiveness in an electricity market the model evaluates sensitivity of the optimal tep to congestion level planning horizon and financial constraints regulators can utilize the proposed results to provide long term tep to market players and to develop incentive mechanisms to trigger generation investments the proposed approach is applied to a hypothetical system and turkish power system

transmission network reinforcement versus facts an economic assessment while a significant amount of work has been and continues to be devoted to the description and analysis of the technical performance of flexible ac transmission systems facts very little attention has been paid to the economics of these devices the most frequently stated economic benefit of facts devices is that they enable postponement of network reinforcement this paper describes a linear programming approach for computing the maximum savings in operating costs that could be secured from installing ultimate 100 facts this gives the volume of the market potentially available for facts as the main aim of this paper is to assess the competitiveness of facts against network reinforcement only facts devices used for active power control are modelled the volume of the market for facts defined as the difference between the gross benefit of full network flexibility and the net benefit of network reinforcement is determined for a wide range of line reinforcement costs it is shown that economics of facts are system specific and depend strongly on the cost of reinforcement it is further concluded that at values of network reinforcement costs presently used in practice facts devices may find it difficult to compete favourably with network reinforcement the model employed in this evaluation takes account of inter temporal load variations as well as network security constraints in addition to the usual generator output and transmission thermal limits