scholarly journals Risk-Sharing or Risk-Taking? Counterparty Risk, Incentives, and Margins

2016 ◽  
Vol 71 (4) ◽  
pp. 1669-1698 ◽  
Author(s):  
BRUNO BIAIS ◽  
FLORIAN HEIDER ◽  
MARIE HOEROVA
Keyword(s):  
Risk Taking ◽  
Risk Sharing ◽  
Counterparty Risk

scholarly journals Variation margins, fires sales, and information-constrained optimality

2020 ◽  
Author(s):  
Bruno Biais ◽  
Florian Heider ◽  
Marie Hoerova
Keyword(s):  
Moral Hazard ◽  
Risk Sharing ◽  
Asset Prices ◽  
Counterparty Risk ◽  
Fire Sales ◽  
Risk Protection ◽  
Incentive Constraints

Abstract In order to share risk, protection buyers trade derivatives with protection sellers. Protection sellers’ actions affect the riskiness of their assets, which can create counterparty risk. Because these actions are unobservable, moral hazard limits risk sharing. To mitigate this problem, privately optimal derivative contracts involve variation margins. When margins are called, protection sellers must liquidate some assets, depressing asset prices. This tightens the incentive constraints of other protection sellers and reduces their ability to provide insurance. Despite this fire-sale externality, equilibrium is information-constrained efficient. Investors, who benefit from buying assets at fire-sale prices, optimally supply insurance against the risk of fire sales.

CCP interoperability and system stability

2016 ◽  
Vol 27 (03) ◽  
pp. 1650025
Author(s):  
Xiaobing Feng ◽  
Haibo Hu
Keyword(s):  
Risk Sharing ◽  
System Stability ◽  
Cascading Failures ◽  
Counterparty Risk ◽  
Financial Regulations ◽  
The World ◽  
Central Counterparties ◽  
Near Term

To control counterparty risk, financial regulations such as the Dodd–Frank Act are increasingly requiring standardized derivatives trades to be cleared by central counterparties (CCPs). It is anticipated that in the near term future, CCPs across the world will be linked through interoperability agreements that facilitate risk sharing but also serve as a conduit for transmitting shocks. This paper theoretically studies a networked network with CCPs that are linked through interoperability arrangements. The major finding is that the different configurations of networked network CCPs contribute to the different properties of the cascading failures.

LEGAL UNFAIRNESS, ENTREPRENEURSHIP AND INNOVATION IN CHINA

2019 ◽  
Vol 24 (03) ◽  
pp. 1950019
Author(s):  
JUNMIN WANG
Keyword(s):  
Risk Taking ◽  
Risk Sharing ◽  
Entrepreneurial Activity ◽  
Institutional Trust ◽  
Firm Innovation ◽  
Psychological Traits ◽  
Political Actors ◽  
Firm Innovativeness ◽  
Nationally Representative ◽  
Salient Factor

The scholarship of entrepreneurship has identified the significance of institutional and social factors in accounting for entrepreneurial activity and firm innovation, especially in emerging economies and transitional societies. However, the lion’s share of the existent literature focuses on entrepreneurs’ characteristics and psychological traits and firms’ structures and strategies. In this study, I develop a relatively comprehensive analytic framework to study the interactive relationships between economic actors’ institutional trust, risk-taking activities and their risk-sharing with social and political actors in shaping firm innovativeness. By analyzing a nationally representative sample of Chinese private companies, I find that entrepreneurs’ legal confidence, risk-taking and risk-sharing activities are positively associated with firm innovativeness, respectively. Entrepreneurs’ risk-taking and risk-sharing activities can substitute for the role of entrepreneurs’ trust in China’s legal system in shaping firm innovativeness. Entrepreneurs’ social ties serve as the most salient factor that modulates the association between entrepreneurs’ institutional trust and innovative activities.

The Role of Risk Sharing and Risk Taking under Gainsharing

2000 ◽  
Vol 25 (3) ◽  
pp. 492 ◽  
Author(s):  
Luis R. Gomez-Mejia ◽  
Theresa M. Welbourne ◽  
Robert M. Wiseman
Keyword(s):  
Risk Taking ◽  
Risk Sharing

Bridging Finance and Behavioral Scholarship on Agent Risk Sharing and Risk Taking

2016 ◽  
Vol 30 (4) ◽  
pp. 349-368 ◽  
Author(s):  
Geoffrey P. Martin ◽  
Robert M. Wiseman ◽  
Luis R. Gomez-Mejia
Keyword(s):  
Risk Taking ◽  
Risk Sharing

Risk-Taking and Risk-Sharing Incentives under Moral Hazard

2014 ◽  
Vol 6 (1) ◽  
pp. 58-90 ◽  
Author(s):  
Mohamed Belhaj ◽  
Renaud Bourlès ◽  
Frédéric Deroïan
Keyword(s):  
Developing Countries ◽  
Moral Hazard ◽  
Risk Taking ◽  
Risk Sharing ◽  
Investment Risk ◽  
Two Agents ◽  
The Impact ◽  
Informal Risk Sharing ◽  
Risky Technology ◽  
Level Of Risk

This paper explores the effect of moral hazard on both risk-taking and informal risk-sharing incentives. Two agents invest in their own project, each choosing a level of risk and effort, and share risk through transfers. This can correspond to farmers in developing countries, who share risk and decide individually upon the adoption of a risky technology. The paper mainly shows that the impact of moral hazard on risk crucially depends on the observability of investment risk, whereas the impact on transfers is much more utility dependent. (JEL D81, D82, D86, G22)

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