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Newsletter
Managing Climate Risk in Mortgage Markets: A Role for Derivatives
The world’s communities and economies are already feeling significant effects from global warming and related climate and extreme weather events, as the latest United Nations Intergovernmental Panel on Climate Change (IPCC) world climate report published in August 2021 makes clear. In some industry sectors, such as insurance and energy, financial market tools have been developed specifically to mitigate the risk of financial loss related to climate. Such tools have yet to be developed for the U.S. mortgage market—one of the world’s largest at roughly $11 trillion as of the end of 2020.
Newsletter
UK Pension Market Stress in 2022 - Why It Happened and Implications for the U.S.
A steep increase in British sovereign yields and swap rates and an equally steep drop in the value of the British pound (GBP) in September 2022 put substantial liquidity pressures on United Kingdom pension funds. This repricing in risk assets was triggered by the UK chancellor’s mini-budget announcement on September 23, 2022, which led to reactions from market participants. The structure and investment strategies of pension funds made them particularly ill-prepared to deal with market turmoil.
Newsletter
A new framework for assessing climate change risk in financial markets
While there is growing recognition that climate change poses a new risk for the economy, more research is needed to understand how climate change risk affects global financial markets. We establish a new framework for this research by merging the climate change risk categories of physical risk, transition risk, and liability risk with the risk categories commonly assessed in the financial markets: market risk, credit risk, liquidity risk, and operational risk. We then factor in market structure and market regulation as we seek to assess the overall impact of these variables on systemic risk. ...
Newsletter
Why the Russian invasion of Ukraine moved wheat futures prices more in the U.S. than in Europe
Russia’s invasion of Ukraine in early 2022 sparked heightened uncertainty over the economic outlook in both countries and prompted an increase in financial market volatility. One of the most impacted areas was the derivatives1 markets for wheat. As one might expect, wheat markets in the European Union (EU) showed significant effects. However, somewhat counterintuitively, the U.S. market had an even stronger price response. I attribute this to differences in market structure and greater access to U.S. markets, which allowed speculators to amplify some of the price movements.