This paper seeks to inform about a feature of monetary policy that is largely overlooked, yet occupies a central role in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood by the observation that the money at the core of these...

A P-sigma-martingale density for a given stochastic process S is a local P-martingale Z0 starting at 1 such that the product ZS is a P-sigma-martingale. Existence of a P-sigma-martingale density is equivalent to a classic absence-of-arbitrage property of S, and it is invariant if we replace the...

We identify an important channel through which political information propagates into capital markets—Washington policy analysts (WAs). WAs monitor political developments and produce research to interpret the impact of these events. Institutional clients generate superior returns on their...

We investigate a deterministic criterion to determine whether a diffusive local martingale with a single jump and state-dependent characteristics is a uniformly integrable martingale. We allow the diffusion coefficient, the jump hazard rate and the relative jump size to depend on the state and...

Recent regulation mandating the clearing of credit default swaps (CDS) by a Central Clearing Counterparties (CCP), has rendered the latter a systemically important institution, whose failure poses a serious threat to global financial stability. This work investigates the potential failure of a...

We reconsider the microeconomic foundations of financial economics under Knightian Uncertainty. In a general framework, we discuss the absence of arbitrage, its relation to economic viability, and the existence of suitable nonlinear pricing expectations. Classical financial markets under risk...

In general multi-asset models of financial markets, the classic no-arbitrage concepts NFLVR and NUPBR have the serious shortcoming that they depend crucially on the way prices are discounted. To avoid this economically unnatural behaviour, we introduce a new way of defining “absence of...

We present a detailed bubble analysis of the Bitcoin to US Dollar price dynamics from January 2012 to February 2018. We introduce a robust automatic peak detection method that classifies price time series into periods of uninterrupted market growth (drawups) and regimes of uninterrupted market...

We investigate the impact of an exogenous trading glitch at a high-frequency market-making firm on standard measures of stock liquidity (spreads, price impact, turnover, and depth) and institutional trading costs (implementation shortfall and VWAP slippage). Stocks in which the firm accumulates...

At odds with the common “rational expectations” framework for bubbles, economists like Hyman Minsky, Charles Kindleberger and Robert Shiller have documented that irrational behavior, ambiguous information or certain limits to arbitrage are essential drivers for bubble phenomena and financial...