1,049 reputation
423
bio website dcsc.tudelft.nl/~itkachev
location Leiden, Netherlands
age 26
visits member for 3 years, 9 months
seen 6 hours ago

I am a PhD student at TU Delft, working in applied probability and stochastic optimal control. My current focus is on approximate model-checking of stochastic systems via bisimulations (a part of computer science). I am interested in a wide field of applications, in particular in some areas of finance, such as risk theory.


Jan
28
asked Particular kind of market game
Jan
27
comment Why banks borrow from each other
Thanks - I can see some reasons why bank may be short for cash: too much withdrawal, small capital inflow at exactly that moment etc. I also understand that it may happen that the bank has much more cash above the required level and it wants money to work. However, why would such a bank lend it to another bank rather than investing this money at a better return rate?
Jan
24
awarded  Benefactor
Jan
23
awarded  Promoter
Jan
23
comment Why banks borrow from each other
I see, the reserve requirements specify how much high-liquid assets (e.g.) cash shall be in the balance sheet given the class of liabilities (deposits), whereas capital requirements specify how much liabilities (equity) shall be in the balance sheet given the class of assets (actually, all assets being risk-weighted). Thanks, I think I have no more questions here - just needed to clarify your answer for myself. I think the answer and comments are good enough for a little bounty.
Jan
22
comment Why banks borrow from each other
One more clarification, if I may. Bank has to keep enough high-liquidity assets (say cash) to above the sum of reserve and capital requirements, or above their maximum (thus, satisfying each of them independently)?
Jan
20
comment Why banks borrow from each other
I see - well, I didn't mean here that borrowing from other banks is the only thing the bank could do in such situation, merely that it's one of the reasons to think about the interbank loan - would that be right?
Jan
20
accepted Why banks borrow from each other
Jan
20
comment Why banks borrow from each other
I see, thanks for the answer
Jan
20
comment Why banks borrow from each other
I'll need to see Mishkin's book then, didn't know that it's classic already :) what is 1b btw?
Jan
19
comment Why banks borrow from each other
I see, so your point is that banks would need to borrow/lend due at this particular day to heterogeneity of the net cash flows of deposits and loans close to that day. This is clear to me. It seems though what are you talking about are still Reserve Requirements - those on the assets sides (which percentage of deposits you have to hold), whereas there are also Capital Requirements on the liabilities sides, and those seem to be different regulations as @Malick mentioned.
Jan
19
comment Why banks borrow from each other
Thanks, I understand the whole complexity of determining fair rates for the IB lending market. Due to the fact that there is usually a spread between FFR and LIBOR, I guess the reason is as follows. The former is a market rate, but controlled by Fed via open market operations to balance demand and supply of Fed Funds primarily regarding the Reserve Requirements. The fact that LIBOR is different suggests that it is used for other reasons rather than not meeting Reserve Requirements. My question is for which reasons is it used, and why some banks would need to lend and some to borrow insuchcase.
Jan
19
comment Why banks borrow from each other
Finally, do you mean that the borrowings with maturities 1/3/6/12 months that LIBOR are mostly due to the fact that banks need to meet capital and reserve requirements (the former being a more important driving force)?
Jan
19
comment Why banks borrow from each other
As these regulations apply to the majority of big banks in the US at least, I would expect that again if all the banks would have an access/will to invest in the same places, then nobody would lend money to others - am I right here?
Jan
19
comment Why banks borrow from each other
So the first point does generally fit "the heterogeneity of investment opportunities": saving banks just don't invest as much and in such places as investment banks do. Right? $$ $$ Thanks for mentioning the capital requirement. I read on that topic a bit now, so banks have to have enough equity - say at least 8% of their risk-weighted investments. If the bank does not have as much, he would like to borrow these money from other banks. Now, again - why would some of the banks have surplus and some would need money?
Jan
17
asked Why banks borrow from each other
Dec
15
awarded  Popular Question
Oct
29
comment Change of measure discrete time
Agree that $\mathsf Q$ must satisfy $\mathsf E_\mathsf Q A_n = 0$ for all $n$, however I wondered which shape will the Radon-Nikodym density have in this case. Now, more than 2 years after OP was posted I think I can come up with the answer - in such a case I'll post it here. Regarding your comment on the uniqueness: indeed, one shall not expect it. Even if $A$ is 3-valued, you obtain a tree model where the market is not complete, so there are several martingale measures.
Oct
6
comment Why use leverage when it does not improve the risk/reward ratio?
What LTCM did in the beginning, was an arbitrage on bonds' spreads: each such trade would gain them only a little money even if they would invest all the money they had. They were sure though that such trades are profitable. Using leverage they were able to increase their exposure.
Sep
29
comment Why hold options when you can dynamically replicate their payoff?
Do I understand your point correctly here: in BS model the only risk is the directional one, and it can be completely eliminated by $\Delta$-hedging (in theory). Now, if we relax our assumptions a bit and still allow for continuous and cost-free $\Delta$-hedging, we are still exposed to volatility and interest-rate related risks (that are not assumed to be present in the BS model though) - right?