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Conference Paper
The asset flexibility option and the value of deposit insurance
Working Paper
Optimal bank portfolio choice under fixed-rate deposit insurance
An analysis of the investment decisions of a bank whose deposits are fully insured under fixed-rate insurance, showing how banks dynamically adjust their investment portfolios in response to market information and how this flexibility affects both investment decisions and the fair cost of deposit insurance.
Working Paper
On flexibility, capital structure, and investment decisions for the insured bank
Most models of deposit insurance assume that the volatility of a bank's assets is exogenously provided. Although this framework allows the impact of volatility on bankruptcy costs and deposit insurance subsidies to be explored, it is static and does not incorporate the fact that equityholders can respond to market events by adjusting previous investment and leverage decisions. This paper presents a dynamic model of a bank that allows for such behavior. The flexibility of being able to respond dynamically to market information has value to equityholders. The impact and value of this ...
Working Paper
Binomial approximation in financial models: computational simplicity and convergence
An exploration of the potential of transformation and other schemes in approximating diffusions (including those with boundaries) commonly seen in financial models. Convergence results are established for valuing both European and American contingent claims.
Working Paper
Regulatory taxes, investment, and financing decision for insured banks
An investigation of the effects of interest rate and credit risk on optimal capital structure and investment decisions. The authors show that with no uncertainty in interest rates, capital regulation will reduce the risk of the bank's assets, but that under interest rate uncertainty, the impact of regulation may be detrimental and raise the risk of the deposits as well as government subsidies to the bank's shareholders.