Modelling financial turmoil through endogenous risk
March 11, 2009
By incorporating endogenous risk into a standard asset-pricing model, this column shows how banks' capacity to bear risk seemingly evaporates in the face of market turmoil, pushing the financial system further into a tailspin. It suggests that risk-sensitive prudential regulation, in the spirit of Basel II, makes systemic financial crises sharper, larger, and more costly.
Published on VoxEU.org
Models and risk
Bloggs and appendices on risk, models, regulations, cryptocurrencies and related topics© All rights reserved, Jon Danielsson,