Fat tails and their (un)happy endings : correlation bias and its implications for systemic risk and prudential regulation /

Fat tails and their (un)happy endings : correlation bias and its implications for systemic risk and prudential regulation /

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Bibliographic Details
Author / Creator:	Chan-Lau, Jorge A., author.
Imprint:	[Washington, D.C.] : International Monetary Fund, ©2011.
Description:	1 online resource (22 pages) : illustrations
Language:	English
Series:	IMF working paper ; WP/11/82 IMF working paper ; WP/11/82.
Subject:	Asset-liability management -- Econometric models. Banks and banking -- Econometric models. Banks and banking -- State supervision -- Econometric models. Financial risk management -- Econometric models. Corporate governance -- Econometric models. Banks and banking -- Econometric models. Corporate governance -- Econometric models.
Format:	E-Resource Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/12499322

Hidden Bibliographic Details
Other authors / contributors:	International Monetary Fund. Western Hemisphere Department, issuing body.
ISBN:	1455224014 9781455224012 1283566273 9781283566278 9781462358632 1462358632 9781455226061 1455226068
Notes:	Includes bibliographical references.
Summary:	The correlation bias refers to the fact that claim subordination in the capital structure of the firm influences claim holders preferred degree of asset correlation in portfolios held by the firm. Using the copula capital structure model, it is shown that the correlation bias shifts shareholder preferences towards highly correlated assets, making financial institutions more prone to fail and increasing systemic risk given interconnectedness in the financial system. The implications for systemic risk and prudential regulation are assessed under the prism of Basel III, and potential solutions involving changes to the prudential framework and corporate governance are suggested.
Other form:	Print version: Fund, International Monetary. Fat Tails and their (Un)happy Endings: Correlation Bias and its Implications for Systemic Risk and Prudential Regulation. Washington : International Monetary Fund, ©2011 9781455226061

Description
Summary:	The correlation bias refers to the fact that claim subordination in the capital structure of the firm influences claim holders' preferred degree of asset correlation in portfolios held by the firm. Using the copula capital structure model, it is shown that the correlation bias shifts shareholder preferences towards highly correlated assets, making financial institutions more prone to fail and increasing systemic risk given interconnectedness in the financial system. The implications for systemic risk and prudential regulation are assessed under the prism of Basel III, and potential solutions involving changes to the prudential framework and corporate governance are suggested.
Physical Description:	1 online resource (22 pages) : illustrations
Bibliography:	Includes bibliographical references.
ISBN:	1455224014 9781455224012 1283566273 9781283566278 9781462358632 1462358632 9781455226061 1455226068