EconStor >
Institut für Weltwirtschaft (IfW), Kiel >
Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/33132
  

Full metadata record

DC FieldValueLanguage
dc.contributor.authorStein, Jerome L.en_US
dc.date.accessioned2010-06-11en_US
dc.date.accessioned2010-07-01T14:14:27Z-
dc.date.available2010-07-01T14:14:27Z-
dc.date.issued2010en_US
dc.identifier.urihttp://hdl.handle.net/10419/33132-
dc.description.abstractAlan Greenspan's paper (March 2010) presents his retrospective view of the crisis. His theme has several parts. First, the housing price bubble, its subsequent collapse and the financial crisis were not predicted either by the market, the FED, the IMF or the regulators in the years leading to the current crisis. Second, financial intermediation tried to function on too thin layer of capital - high leverage - owing to a misreading of the degree of risk embodied in ever more complex financial products and markets. Third, the breakdown was unpredictable and inevitable, given the 'excessive' leverage - or low capital - of the financial intermediaries. The proposed legislation for the 'reform' of the financial system requires that the FED "identify, measure, manage and mitigate risks to the financial stability of the United States". The focus is upon capital requirements or debt ratios. The 'Quants' ignored systemic risk and just focused upon risk transfer in very liquid markets. The FED, IMF, Treasury and the 'Quants'/market lacked the appropriate tools of analysis to answer the following questions: what is an optimal leverage or capital requirement that balances the expected growth against risk? What are theoretically founded early warning signals of a crisis? The author explains why the application of stochastic optimal control (SOC)/dynamic risk management is an effective approach to determine the optimal degree of leverage, the optimum and excessive risk and the probability of a debt crisis. The theoretically derived early warning signal of a crisis is the excess debt ratio, equal to the difference between the actual and optimal ratio. The excess debt starting from 2004-05 indicated that a crisis was most likely. This SOC analysis should be used by those charged with surveillance of financial markets.en_US
dc.language.isoengen_US
dc.publisherKiel Institute for the World Economy (IfW) Kielen_US
dc.relation.ispartofseriesEconomics Discussion Papers 2010-17en_US
dc.subject.jelC61en_US
dc.subject.jelG11en_US
dc.subject.jelG12en_US
dc.subject.jelG14en_US
dc.subject.ddc330en_US
dc.subject.keywordStochastic optimal controlen_US
dc.subject.keywordwarning signals of crisisen_US
dc.subject.keywordoptimal leverage and debt ratiosen_US
dc.subject.stwFinanzmarktkriseen_US
dc.subject.stwBankenkriseen_US
dc.subject.stwFinanzsektoren_US
dc.subject.stwKapitalstrukturen_US
dc.subject.stwEigenkapitalvorschriftenen_US
dc.subject.stwRisikomanagementen_US
dc.subject.stwKontrolltheorieen_US
dc.subject.stwStochastischer Prozessen_US
dc.subject.stwFrühwarnsystemen_US
dc.subject.stwTheorieen_US
dc.subject.stwUSAen_US
dc.titleAlan Greenspan, the quants and stochastic optimal controlen_US
dc.typeWorking Paperen_US
dc.identifier.ppn627767060en_US
dc.rights.licensehttp://creativecommons.org/licenses/by-nc/2.0/de/deed.en-
dc.identifier.repecRePEc:zbw:ifwedp:201017-
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers

Files in This Item:
File Description SizeFormat
627767060.pdf367.81 kBAdobe PDF
No. of Downloads: Counter Stats
Show simple item record
Download bibliographical data as: BibTeX

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.