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Working Paper
Optimal Bidder Selection in Clearing House Default Auctions
Garratt, Rodney; Murphy, David; Nesmith, Travis D.; Wu, Xiaopeng (2024-08-01)
Central counterparties' ability to hold successful default auctions is critically important to financial stability. However, due to the unique features of these auctions, standard auction theory results do not apply. We present a model of CCP default auctions that incorporates both the vital, but non-standard, objective of minimizing the likelihood it suffers reputationally damaging losses and the potential for information leakage to affect CCP members' private portfolio valuations. This gives insight into the key question of how CCPs should select auction participants. In particular, we ...
Finance and Economics Discussion Series , Paper 2023-033r1

Report
Global variance term premia and intermediary risk appetite
Van Tassel, Peter; Vogt, Erik (2016-08-12)
Sellers of variance swaps earn time-varying risk premia for their exposure to realized variance, the level of variance swap rates, and the slope of the variance swap curve. To measure risk premia, we estimate a dynamic term structure model that decomposes variance swap rates into expected variances and term premia. Empirically, we document a strong global factor structure in variance term premia across the U.S., U.K., Europe, and Japan. We further show that variance term premia are negatively correlated with the risk appetite of hedge funds, broker-dealers, and mutual funds. Our results ...
Staff Reports , Paper 789

Working Paper
The TIPS Liquidity Premium
Christensen, Jens H. E.; Riddell, Simon; Andreasen, Martin M. (2020-07-09)
We introduce an arbitrage-free term structure model of nominal and real yields that accounts for liquidity risk in Treasury inflation-protected securities (TIPS). The novel feature of our model is to identify liquidity risk from individual TIPS prices by accounting for the tendency that TIPS, like most fixed-income securities, go into buy-and-hold investors’ portfolios as time passes. We find a sizable and countercyclical TIPS liquidity premium, which helps our model to match TIPS prices. Accounting for liquidity risk also improves the model’s ability to forecast inflation and match ...
Working Paper Series , Paper 2017-11

Journal Article
Derivatives disclosures by major U.S. banks, 1995
Eller, Gregory E.; Edwards, Gerald A. (1996-09)
This review of the 1995 annual reports of ten major U.S. commercial banks shows that public disclosure about derivatives activities continues to improve. Compared with reports for earlier years, banks are providing more types of information in greater depth and in ways that make the information more easily understood by readers of public financial statements. These large banks, in response to standards and recommendations promulgated by various groups as well as by shareholder concerns, have made significant strides in increasing the transparency of their derivatives activities.
Federal Reserve Bulletin , Volume 82 , Issue Sep , Pages 791-801

Working Paper
QE Auctions of Treasury Bonds
Song, Zhaogang; Zhu, Haoxiang (2014-06-16)
The Federal Reserve (Fed) uses a unique auction mechanism to purchase U.S. Treasury securities in implementing its quantitative easing (QE) policy. In this paper, we study the outcomes of QE auctions and participating dealers' bidding behaviors from November 2010 to September 2011, during which the Fed purchased $780 billion Treasury securities. Our data include the transaction prices and quantities of each traded bond in each auction, as well as dealers' identities. We find that: (1) In QE auctions the Fed tends to exclude bonds that are liquid and on special, but among included bonds, ...
Finance and Economics Discussion Series , Paper 2014-48

Working Paper
Hedging and Pricing in Imperfect Markets under Non-Convexity
Assa, Hirbod; Gospodinov, Nikolay (2014-08-01)
This paper proposes a robust approach to hedging and pricing in the presence of market imperfections such as market incompleteness and frictions. The generality of this framework allows us to conduct an in-depth theoretical analysis of hedging strategies for a wide family of risk measures and pricing rules, which are possibly non-convex. The practical implications of our proposed theoretical approach are illustrated with an application on hedging economic risk.
FRB Atlanta Working Paper , Paper 2014-13

Journal Article
Trends in credit basis spreads
Gupta, Pooja; Yen, Jacqueline; Steele, Nick; Boyarchenko, Nina (2018-24-02)
Market participants and policymakers were surprised by the large, prolonged dislocations in credit market basis trades during the second half of 2015 and the first quarter of 2016. In this article, we examine three explanations proposed by market participants: increased idiosyncratic risks, strategic positioning by asset managers, and regulatory changes. We find some evidence of increased idiosyncratic risk during the relevant period, but limited evidence of asset managers changing their positioning in derivative products. Although we cannot quantify the contribution of these two channels to ...
Economic Policy Review , Issue 24-2 , Pages 15-37

Working Paper
Does Financial Stress Affect Commodity Futures Traders’ Positions?
Du, Shengwu; Nesmith, Travis D.; Heppe, Yang (2025-09-19)
Financial stress can impact trading behavior in the U.S. commodity futures markets. To clarify the impact, we study absolute changes and relative exposure dynamics in traders' positions during two recent crises: the 2008 Global Financial Crisis (GFC) and the COVID-19 pandemic. The nature of these two crises are very distinct, and we find that traders behaved quite differently. The commodity market collapse during the 2008 GFC followed the classic pattern of a speculative bubble; speculators, including financial institutions and money managers, rushed to close their long positions in commodity ...
Finance and Economics Discussion Series , Paper 2025-082

Working Paper
Does Financial Stress Affect Commodity Futures Traders’ Positions?
Du, Shengwu; Nesmith, Travis D.; Heppe, Yang (2025-11-04)
Financial stress can impact trading behavior in the U.S. commodity futures markets. To clarify the impact, we study absolute changes and relative exposure dynamics in traders' positions during two recent crises: the 2008 Global Financial Crisis (GFC) and the COVID-19 pandemic. The nature of these two crises are very distinct, and we find that traders behaved quite differently. The commodity market collapse during the 2008 GFC followed the classic pattern of a speculative bubble; speculators, including financial institutions and money managers, rushed to close their long positions in commodity ...
Finance and Economics Discussion Series , Paper 2025-082r1

Working Paper
Macro Risks and the Term Structure of Interest Rates
Bekaert, Geert; Engstrom, Eric C.; Ermolov, Andrey (2017-06)
We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks, later recessions were driven primarily by demand shocks, and the Great Recession exhibited large negative shocks to both demand and supply. We estimate "macro risk factors" that drive "bad" (negatively skewed) and "good" (positively skewed) variation for supply and demand shocks. The Great Moderation is mostly accounted for by a reduction in good variance. In contrast, ...
Finance and Economics Discussion Series , Paper 2017-058

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