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Collateral-motivated financial innovation

Shen, Ji, Yan, Hongjun and Zhang, Jinfan (2014) Collateral-motivated financial innovation. Review of Financial Studies, 27 (10). pp. 2961-2997. ISSN 0893-9454

Full text not available from this repository.
Identification Number: 10.1093/rfs/hhu036

Abstract

Collateral frictions have a profound effect on our economic landscape, ranging from the design of financial securities, laws, and institutions, to various rules and regulations. We analyze a model with disagreement, where securities and collateral requirements are endogenous. It shows that the security that isolates the variable with disagreement is “optimal” in the sense that alternative securities cannot generate any trading. In an economy with N states, investors may introduce more than N securities, and markets are still incomplete. The model has several novel predictions on the behavior of basis—the spread between the prices of an asset and its replicating portfolio.

Item Type: Article
Official URL: http://rfs.oxfordjournals.org/
Additional Information: © 2014 The Authors
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 20 Apr 2015 08:31
Last Modified: 20 Mar 2019 02:31
Funders: Whitebox Advisors Research Grant
URI: http://eprints.lse.ac.uk/id/eprint/61628

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