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A Multiperiod Bank Run Model for Liquidity Risk

Abstract:

We present a new dynamic bank run model for liquidity risk where a financial institution finances its risky assets by a mixture of short- and long-term debt. The financial institution is exposed to insolvency risk at any time until maturity and to illiquidity risk at a finite number of rollover dates. We compute both insolvency and illiquidity default probabilities in this multiperiod setting using a structural credit risk model approach. Firesale rates can be determined endogenously as expec...

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Publication status:
Published

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Publisher copy:
10.1093/rof/rft016

Authors


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Institution:
University of Oxford
Department:
Oxford, MPLS, Oxford-Man
Luetkebohmert, E More by this author
Publisher:
Oxford University Press
Journal:
REVIEW OF FINANCE
Volume:
18
Issue:
2
Pages:
803-842
Publication date:
2014-04-05
DOI:
EISSN:
1573-692X
ISSN:
1572-3097
URN:
uuid:35b81b44-3a3c-4ea0-bcfc-a8b8451b6d21
Source identifiers:
356588
Local pid:
pubs:356588
Language:
English

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