Ph.D. theses (FI)http://hdl.handle.net/10398/722016-12-05T00:13:55Z2016-12-05T00:13:55ZFinancial FrictionsJensen, Mads Vestergaardhttp://hdl.handle.net/10398/93862016-11-11T14:44:12Z2016-11-11T00:00:00ZFinancial Frictions
Jensen, Mads Vestergaard
A call option on a stock is a common and widely used derivative. On an average trading day in
2015, more than 800,000 such options traded on the Chicago Board Options Exchange, the largest
options exchange in the United States. Each option grants its owner the right to buy 100 of a
specific stock at a pre-specified price, no later than a pre-specified date. For example, an option
can grant the right to buy 100 General Electric shares for USD 31 each no later than October 21,
2016. An interesting issue is determining when an option is optimally exercised. Merton (1973)
shows that in a world without frictions, a call option should never be exercised early, but only at
expiration or just before the underlying stock pays a dividend. Chapter one of this thesis shows that
suffciently severe frictions can make early exercise optimal. Short-sale costs especially represent
an important driver of early exercise. Chapter two shows that when option owners exercise early, it
predicts stock returns, consistent with option owners acting on private information. Chapter three
does not include options but shows that demand shifts in the shorting market for stocks predict
the volatility of the affected stocks, which is consistent with increases in differences of opinions
among market participants.
2016-11-11T00:00:00ZInterbank Markets and FrictionsJensen, Mikael Reimerhttp://hdl.handle.net/10398/93852016-11-11T14:29:56Z2016-11-11T00:00:00ZInterbank Markets and Frictions
Jensen, Mikael Reimer
In the rst essay we look at the Danish interbank market and how it functioned during
the nancial crisis. Prior to the nancial crisis the view seemed to be that the money
markets were well functioning and capable of handling stress in nancial markets. This is
the conclusion in Fur ne (2001, 2002) who analysis the US money market during the crisis
in the autumn of 1998 where Russia e ectively defaulted on its sovereign debt. However,
the recent nancial crisis was a lot more severe than the one in 1998. During the recent
crisis we have seen the volatility of money market rates spike and many central banks have
conducted unconventional monetary policies. Whether the interbank markets are robust is
thus a relevant question again.
A key element in our analysis is that the total amount of liquidity in the interbank
market is constant when central bank interventions are absent. A negative shock to one
bank's liquidity holdings should correspond with a positive shock for another bank's liquidity
holding. In a market with no frictions, banks faced with liquidity shocks should be able to
absorb these by borrowing from those with surplus liquidity.
2016-11-11T00:00:00ZEssays on Market DesignLiu, Yunhttp://hdl.handle.net/10398/93632016-09-27T08:09:58Z2016-09-27T00:00:00ZEssays on Market Design
Liu, Yun
This Ph.D. thesis is composed of four independent research papers in the field of Market
Design. It begins with a general introduction for all four papers and ends with a brief
conclusion. In this thesis, I study the impact of heterogeneous market participants on
allocation outcomes in different market mechanisms; in addition, how to design alternative
mechanisms that can more effectively allocate scarce resources with diverse economic and
social goals.
Chapter 1 studies the impact of affirmative action policies in the context of school
choice. It addresses the following two questions: what are the causes of possible perverse
consequence of affirmative action policies, and when the designer can effectively implement
affirmative actions without unsatisfactory outcomes. Using the minority reserve
policy in the student optimal stable mechanism as an example, I show that two acyclicity
conditions, type-specific acyclicity and strongly type-specific acyclicity, are crucial for
effective affirmative action policies. However, these two cycle conditions are almost impossible
to be satisfied in any finite market in practice. Given the limitation of the point-wise
effectiveness in finite markets, I further illustrate that the minority reserve policy is approximately
effective in the sense that the probability of a random market containing
type-specific cycles converges to zero when the copies of schools grow to infinite.
Chapter 2 addresses the question of how ex ante asymmetry affects bidders’ equilibrium
strategies in two popular multi-unit auction rules: uniform-price auction (UPA)
and discriminatory-price auction (DPA). I characterize the set of asymmetric monotone
Bayes–Nash equilibria in a simple multi-unit auction game in which two units of a homogeneous
object are auctioned among a set of bidders. I argue that bidders’ strategic
behavior essentially comes from their diverse market positions (i.e., the winning probability
and the probability of deciding the market-clearing price). That is, if a bidder
has a relatively strong market position, she has less incentive to shade her bid for the second unit in a UPA, whereas in a DPA, weaker bidders tend to bid more aggressively
on both of two units. Following Chapter 2, Chapter 3 further analyzes and contrasts
bidders’ collusion incentives at the ex ante stage. My results indicate that the UPA is
more vulnerable to collusion than the DPA in term of the expected per-member payoff and
the core-stability.
In the last chapter, I show that a variant of the Vickrey-Clarke-Groves auction,
Ausubel’s clinching auction, is vulnerable to collusion in the sense that it always has a nonempty
core. I further discuss an isomorphism relation between group strategy-proofness
and non-bossiness in allocation, and the incompatibility between efficient allocation and
non-bossiness in finite auction markets.
2016-09-27T00:00:00ZUnderstanding Interest Rate VolatilityVolker, Desihttp://hdl.handle.net/10398/93402016-08-23T07:54:59Z2016-08-23T00:00:00ZUnderstanding Interest Rate Volatility
Volker, Desi
This thesis is the result of my Ph.D. studies at the Department of Finance of the
Copenhagen Business School. It consists of three essays covering topics related to
the term structure of interest rates, monetary policy and interest rate volatility.
The rst essay, \Monetary Policy Uncertainty and Interest Rates", examines the
role of monetary policy uncertainty on the term structure of interest rates. The
second essay, \A Regime-Switching A ne Term Structure Model with Stochastic
Volatility" (co-authored with Sebastian Fux), investigates the ability of the class
of regime switching models with and without stochastic volatility to capture the
main stylized features of U.S. interest rates. The third essay, \Variance Risk Premia
in the Interest Rate Swap Market", investigates the time-series and cross-sectional
properties of the compensation demanded for holding interest rate variance risk. The
essays are self-contained and can be read independently. There is however a common
thread in the themes covered as all essays focus on the understanding of interest rate
volatility, its time-variation and main determinants.
2016-08-23T00:00:00Z