Risk research: Procyclical leverage and endogenous risk

Procyclical leverage and endogenous risk

Daníelsson, J., H. S. Shin, and J.-P. Zigrand (2012, October). Procyclical leverage and endogenous risk.

We explore the extent to which financial conditions fluctuate due to fluctuations in leverage, and thereby connect the recent literature on banking crises with the leverage effect of Fisher Black. We solve for equilibrium leverage and volatility inclosed form in a model with financial intermediation and explore the consequences for risk premia, asymmetric volatility and option pricing.

@MISC{DanielssonShinZigrand2012,
  author =  {J{\'o}n Dan{\'i}elsson and  Hyun Song Shin and Jean-
                  Pierre Zigrand},
  title =   {Procyclical leverage and endogenous risk},
  year =    2012,
  url =     {ssrn.com/abstract=1360866},
 }

Regime switches in the volatility and correlation of financial institutions

Endogenous and systemic risk