Essays on Risk Regulation and on Affine Term Structure Models

José Vicente

Keywords: Risk Regulation | General Equilibrium Models and Term Structure Models

This work is composed by two distinct parts. In the first part we analyze the problem of introduction of capital requirements to cover market and credit risks by a general equilibrium model. We start setting necessary conditions to the existency of equilibrium. Next, we study the social welfare problem in this economy and we determine conditions to the Pareto Efficiency. Finally, we assess the consequences about assets prices, forecast variances of the assets returns, bankrutcy probability of the financial institution and contagion due to such practice. In the second part we investigate the incompleteness of the fixed income market in Brazil. Firstly, we study two classical no-arbitrage multi-factor models, namely the Gaussian model and the Cox-Ingerssoll-Ross model. The results indicate evidences that the bond market is unable to span the fixed income market as a whole. Next, we propose a model (a variation of Unspanned Stochastic Volatility model proposed by Collin-Dufresne & Goldstein, 2001) in which there are souces of uncertainties driving the short term rate volatility not captured by the bond market. This model is a promising candidate to reconcile theory with empirical findings.

Anexos:

• tese_ing4.pdf