London School of Economics
Information about this author at RePEc
NBER Working Papers and Publications
|April 2012||Endogenous and Systemic Risk|
with Hyun Song Shin, Jean-Pierre Zigrand
in Quantifying Systemic Risk, Joseph G. Haubrich and Andrew W. Lo, editors
This chapter, which examines the feedback between market volatility and traders' perception of risk, spells out the precise mechanism through which endogenous risk manifests itself, and discusses ways of mitigating it. It considers a variety of markets, explaining the implied volatility skew for options, the procyclical impact of Basel II bank capital requirements, and the optimal design for derivatives clearing and lenders of last resort.