# Tag Info

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U.S. Government DID save American International Group (AIG) from bankruptcy, since it was considered too big to fail, actually: a lot of financial institutions were insured by AIG. This Investopedia page is a nice summary on the topic about AIG's bailout. Here (Investopedia again) about Lehman Brothers, that became really too much leveraged and exposed to ...

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There is not a single 'interest-rate' to reduce, there are various interest rates in play. The central bank mandate is usually to control CPI or a similar measure of inflation (e.g. Bank of England's 2% inflation target for GBP). There are various tools for them to do this, including QE and setting the central bank rate. However, at the moment, the central ...

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Put it simply, the interest rate depends on the forces of demand and supply of money. When the Fed buy bond, it increases the money supply into the economy. To induce the people to borrow more money bank reduces their own interest rate, otherwise, people won't have any incentives to borrow more. The interest rate is reduce to such level again equilibrium is ...

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The general formula for conversion of "a to b" odds to a probability is $p=\frac{b}{a+b}$ http://www.calculatorsoup.com/calculators/games/odds.php So 8/15 remain implies remain with probability 0.652 8/4 for leave implies leave with probability 0.333 The amount 1-0.652-0.333 = 0.0145 represents the bid-ask spread or loss that you suffer (and the other ...

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To evaluate the impact on your FX portfolio of an increase in LIBOR, or any other rate for that matter, you must know: Which currencies you have exposure to Which positions have a floating rate exposure and to what rate. You can then model the relationship between LIBOR and those variables. Without that information, you cannot do anything. For example,...

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No. Actually "risk neutral pricing" does not make assumptions on the risk preferences of the agents. Securities are priced as if agents were risk neutral (that is to say as a straight expectation of discounted payoffs) but where probabilities of states of the world are not the true ones but they have been adjusted to reflect preferences. The math: Say ...

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Clearly the money markets are likely to freeze up in a crisis situation. They did exactly that in 2008. Specifically: A) people don't want to lend money unsecured to banks, so bank commercial paper goes below par in the market. B) understanding this , people try to liquidate money market funds containing bank cp at par, so a run develops on money market ...

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Regarding how the rating agencies gave AAA ratings to CDOs and the like that clearly did not deserve those ratings - straightforward answer. The SEC licences all the ratings agencies as "nationally recognized statistical rating organizations" (NRSRO). It is blindingly obvious that the SEC was not actually overseeing the rating organizations that it was ...

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Since Freddie Mac and Fannie Mae are government sponsored enterprises (GSEs), the government guarantee was considered "implicit" before the financial crisis. As such, the credit quality of their papers was believed to be almost as high as US Treasuries. This assumption pretty much turned out to be true. Both Fannie and Freddie were taken into conservatorship ...

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There are quite a few ways to compute this. Refer to The Yield Curve as a Leading Indicator, An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching, and Smoothed U.S. Recession Probabilities. These are used in academic and by practitioners alike.

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I think one should start with the basic Asset Pricing papers such as: Mehra and Prescott 1985; Campbell and Cochrane 1999; Bansal and Yaron 2004; Most of the models are then variations of these in one way or another. Some other more complex but potentially interesting are on intermediation. Some authors provide codes. Take a look for instance ...

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The traditional tool of central banks is the direct control of interest rates. The interest rate being controlled is usually the short dated interbank rate ( federal funds rate in the US). If, in a severe recession, the short rates have already been reduced to zero, we have seen central banks turn to QE. Under QE, the central bank typically buys ...

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Good question. to make it short: same Aim, but just different ways to fullfill a goal. if you (or Lender of last resort) create(s) an exogenous shock by lowering directly rates, the cost of interbank money is de facto reduced and you expect a positive externality in real economy by providing more loans towards economic agents (companies, etc.). However with ...

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The money market fund could suffer principle loss during crisis and one of them publicly did during the crisis of 2008. I say publicly because there are funds that suffered large loss that would have had them 'break the buck' except their sponsoring organizations bailed them out. I urge you you check out this New York Fed research for a comprehensive look at ...

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In a world of uncertainty no one knows what future profits will be (especially > 1 year from now). All we can do is estimate. Who should we ask? The company management has an incentive to give out estimates that may be too optimistic. If you ask the competitors they are probably too pessimistic. Fortunately we have a machine called the stock market which ...

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I guess the best way to test herding using intraday data is to use Hawkes modelling. Hawkes processes capture the fact an event is a consequence of a previous one (endogenous) or totally new (exogenous). A good start is Chapter V of Thibault Jaisson's PhD thesis: Market activity and price impact throughout time scales. It is of course related to market ...

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