Exploiting a unique policy intervention in China, we examine using a difference-in-difference-in-differences (DDD) approach how a new pension program impacts inter vivos transfers. We show that pension benefits lower the propensity of receiving transfers from adult children in the context of a large middle-income country and we also estimate a small crowd-out effect. Taken together, these estimates fit the pattern of previous research in high-income countries, although our estimates of the crowd-out effect are significantly smaller than previous studies in both high-income and middle-income countries.

Our knowledge about the evolution of guarantee network in downturn period is limited due to the lack of comprehensive data of the whole credit system. Here we analyze the dynamic Chinese guarantee network constructed from a comprehensive bank loan dataset that accounts for nearly 80% total loans in China, during 01/2007-03/2012. The results show that, first, during the 2007-2008 global financial crisis, the guarantee network became smaller, less connected and more stable because of many bankruptcies; second, the stimulus program encouraged mutual guarantee behaviors, resulting in highly reciprocal and fragile network structure; third, the following monetary policy adjustment enhanced the resilience of the guarantee network by reducing mutual guarantees. Interestingly, our work reveals that the financial crisis made the network more resilient, and conversely, the government bailout degenerated network resilience. These counterintuitive findings can provide new insight into the resilience of real-world credit system under external shocks or rescues.

This paper offers a systematic investigation on the existence of equivalent local martingale deflators, which are multiplicative special semimartingales, in financial markets given by positive semimartingales. In particular, it shows that the existence of such deflators can be characterized by means of the modified semimartingale characteristics. Several examples illustrate our results. Furthermore, we provide interpretations of the deflators from an economic point of view.

We consider explicit approximations for European put option prices within the stochastic Verhulst model with time-dependent parameters, where the volatility process follows the dynamics $dV_t = \kappa_t (\theta_t - V_t) V_t dt + \lambda_t V_t dB_t$. Our methodology involves writing the put option price as an expectation of a Black-Scholes formula, reparameterising the volatility process and then performing a number of expansions. The difficulties faced are computing a number of expectations induced by the expansion procedure explicitly. We do this by appealing to techniques from Malliavin calculus. Moreover, we deduce that our methodology extends to models with more generic drift and diffusions for the volatility process. We obtain the explicit representation of the form of the error generated by the expansion procedure, and we provide sufficient ingredients in order to obtain a meaningful bound. Under the assumption of piecewise-constant parameters, our approximation formulas become closed-form, and moreover we are able to establish a fast calibration scheme. Furthermore, we perform a numerical sensitivity analysis to investigate the quality of our approximation formula in the stochastic Verhulst model, and show that the errors are well within the acceptable range for application purposes.

We study a continuous-time version of the intermediation model of Grossman and Miller (1988). To wit, we solve for the competitive equilibrium prices at which liquidity takers' demands are absorbed by dealers with quadratic inventory costs, who can in turn gradually transfer these positions to an exogenous open market with finite liquidity. This endogenously leads to transient price impact in the dealer market. Smooth, diffusive, and discrete trades all incur finite but nontrivial liquidity costs, and can arise naturally from the liquidity takers' optimization.

We introduce a general model for the balance-sheet consistent valuation of interbank claims within an interconnected financial system. Our model represents an extension of clearing models of interdependent liabilities to account for the presence of uncertainty on banks' external assets. At the same time, it also provides a natural extension of classic structural credit risk models to the case of an interconnected system. We characterize the existence and uniqueness of a valuation that maximises individual and total equity values for all banks. We apply our model to the assessment of systemic risk, and in particular for the case of stress-testing. Further, we provide a fixed-point algorithm to carry out the network valuation and the conditions for its convergence.

We solve in closed-form an equilibrium model in which a finite number of exponential investors continuously consume and trade with price-impact. Compared to the analogous Pareto-efficient equilibrium model, price-impact has an amplification effect on risk-sharing distortions that helps resolve the interest rate puzzle and the stock-price volatility puzzle and, to a lesser extent, affects the equity premium puzzle.

Many Stated Preference (SP) studies conducted in developing countries exhibit a low willingness to pay (WTP) for a wide range of goods and services. However, recent studies in these countries indicate that this may be a result of the choice of payment vehicle, not the preference for the good. Thus, low WTP may not indicate a low welfare effect for public projects in developing countries. We argue that in a setting where there is imperfect substitutability between money and other measures of wealth (e.g. labor), including two or more payment vehicles may be needed to obtain valid welfare estimates. Otherwise, we risk underestimating the welfare benefit of projects. We demonstrate this through a rural household contingent valuation (CV) survey designed to elicit the value of access to reliable irrigation water in Ethiopia. Our result shows that both absolute and relative endowment of labor and income highly influence respondents' choices. Of the total average annual WTP for access to reliable irrigation service, cash contribution comprises only 24.41\%. Our findings highlight the importance of accounting for cross payment vehicle correlation and potential endogeneity biases that arise in the sequence of WTP and Willingness to contribute (WTC) valuation questions. Keywords: Endogeneity; bivariate probit model; Contingent valuation; Stated preference methods; Irrigation service; Ethiopia; Developing countries

In this paper we develop a solution method for general optimal stopping problems. Our general setting allows for multiple exercise rights, i.e., optimal multiple stopping, for a robust evaluation that accounts for model uncertainty, and for general reward processes driven by multi-dimensional jump-diffusions. Our approach relies on first establishing robust martingale dual representation results for the multiple stopping problem which satisfy appealing pathwise optimality (almost sure) properties. Next, we exploit these theoretical results to develop upper and lower bounds which, as we formally show, not only converge to the true solution asymptotically, but also constitute genuine upper and lower bounds. We illustrate the applicability of our general approach in a few examples and analyze the impact of model uncertainty on optimal multiple stopping strategies.

Scalar dynamic risk measures for univariate positions in continuous time are commonly represented as backward stochastic differential equations. In the multivariate setting, dynamic risk measures have been defined and studied as families of set-valued functionals in the recent literature. There are two possible extensions of scalar backward stochastic differential equations for the set-valued framework: (1) backward stochastic differential inclusions, which evaluate the risk dynamics on the selectors of acceptable capital allocations; or (2) set-valued backward stochastic differential equations, which evaluate the risk dynamics on the full set of acceptable capital allocations as a singular object. In this work, the discrete time setting is investigated with difference inclusions and difference equations in order to provide insights for such differential representations for set-valued dynamic risk measures in continuous time.

We establish several closed pricing formula for various path-independent payoffs, under an exponential L\'evy model driven by the Variance Gamma process. These formulas take the form of quickly convergent series and are obtained via tools from Mellin transform theory as well as from multidimensional complex analysis. Particular focus is made on the symmetric process, but extension to the asymmetric process is also provided. Speed of convergence and comparison with numerical methods (Fourier transform, quadrature approximations, Monte Carlo simulations) are also discussed; notable feature is the accelerated convergence of the series for short term options, which constitutes an interesting improvement of numerical Fourier inversion techniques.

This study presents new analytic approximations of the stochastic-alpha-beta-rho (SABR) model. Unlike existing studies that focus on the equivalent Black-Scholes (BS) volatility, we instead derive the equivalent constant-elasticity-of-variance (CEV) volatility. Our approach effectively reduces the approximation error in a way similar to the control variate method because the CEV model is the zero vol-of-vol limit of the SABR model. Moreover, the use of CEV volatility has the effect of imposing an absorbing boundary condition at the origin and thus provides small-time asymptotics for the mass at zero. The numerical results compare favorably with the BS volatility approximations in terms of the approximation accuracy and no-arbitrage region.