I present a model in which heterogeneity in financial distress endogenously generates inefficiencies in network formation, creating excessive systemic risk. Financial firms face costly liquidation and strategically trade assets, thereby forming links. A link with a distressed firm can be socially costly as it increases system-wide liquidation risk. When the cross-sectional dispersion of distres...

seminars at Toronto University and ESSEC Business School for useful comments. We gratefully acknowledge financial support of the chair QUANTVALLEY/Risk Foundation: " Quantitative Management Initiative " and the Swiss National Science Foundation through the NCCR FINRISK network. Abstract In this paper we examine the dependence between the liquidation risks of individual hedge funds. This depende...

A The auxiliary problem 1 A.1. Notation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A.2. Immediate liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A.3. Value of a barrier strategy . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A.4. The optimal barrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A.5. Verification . . . . ...

We study the optimal liquidation strategy for a call spread in the case when the market uses an over-estimated volatility to price options. The problem is formulated as an optimal stopping problem, which we solve explicitly.

Shortages of essential drugs, including critical chemotherapy drugs, have become commonplace. Drug shortages cost significant time and financial resources, lead to adverse patient outcomes, delay clinical trials, and pose significant ethical challenges. Pediatric oncology is particularly susceptible to drug shortages, presenting an opportunity to examine these ethical issues and provide recomme...

Shortages of pharmaceutical drugs pose a serious and growing threat to public health. Although the number of drugs in shortage in the United States in any given year is very small, the number of prescription drug shortages in the country nearly tripled between 2005 and 2010. Drug shortages are becoming more severe as well as more frequent. The affected medicines include cancer treatments, anest...

This work is concerned with an optimal selling rule for a large position of stock in a market. Selling a large block of stock in a short period typically depresses the market, which would result in a poor filling price. In addition, the large selling intensity makes the regime more likely to be poor state in the market. In this paper, regime switching and depressing terms associated with sellin...

This paper proposes a new pricing model for corporate securities issued by a levered firm with the possibility of debt renegotiation. We take the structural approach that the firm’s earnings follow a geometric Brownian motion with stochastic collaterals. While equity holders can default the firm for their own benefits when the earnings become insufficient to go on the firm, they may want to liq...

This paper examines the reorganization process under Chapter 11 of the U.S. bankruptcy code. Our model considers two classes of creditors and accommodates several features of Chapter 11, including the intervention of the bankruptcy judge. We model the strategic interaction between claimants under Chapter 11 as a costly multiple-stage bargaining process, and solve it in a game theory setting. Us...