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A search theoretic model of repurchase agreements is constructed wherein the sellers' incentives to fail to deliver securities are explicitly incorporated. In equilibrium, too many sellers choose to fail relative to the social optimum. Two types of interventions are studied: a fails charge and an interest reset. These interventions improve efficiency by lowering the fraction of sellers who fail and making it easier for buyers to find their counterparties. In extensions of the model, the two types of optimal interventions are differently affected by fundamental variables. Thus, a policymaker needs to carefully distinguish between the workings of the two.

The same capitalism vital to day-to-day wealth creation is even more important at grand scales in a modern technological society. A superior posture from which to boost infrastructure would entail separation of state and economics and a sidelining of the government-centric approach. A course correction is in order.

The crisis management and deposit insurance (CMDI) framework in the euro area requires a reset. Currently the framework is far more likely to manufacture a crisis rather than enable the authorities to manage one. Specifically, the current framework is far more likely to trigger the doom loop between weak banks and weak governments than to terminate or untie it. Nor will the current framework necessarily protect deposits. There is no guarantee that a euro in covered deposits will remain a euro, if the bank in which the deposit is held fails, and/or the Member State in which the failing bank is headquartered defaults. The CMDI framework aims to enhance financial stability, limit recourse to taxpayer money, promote competition and protect depositors. These policy objectives remain valid. What needs to change is the method that authorities use to achieve those objectives. First, the approach needs to integrate micro- and macro- aspects of crisis management. In particular, the approach needs to take account of the prospective roles of the European Stability Mechanism, both as a provider of credit to Member States as well as a guarantor of the Single Resolution Fund. Second, the approach needs encompass the central bank as a provider of liquidity to banks individually and to the market as a whole. Finally, the approach needs to recognize that by the time any reform proposed as a result of this review would become effective, the SRB and the significant institutions in the euro area will have completed the transition and become fully resolvable via bail-in. This affords the euro area the opportunity to reset expectations about resolution. The euro area should take this opportunity to make the crisis management and deposit insurance framework more European and more uniform. Specifically, there should be a single presumptive path for dealing with failed banks: the use of bail-in to facilitate the orderly liquidation under a solvent- wind down strategy. This will protect deposits and set the stage for the transformation of the Single Resolution Fund (SRF) into the Single Deposit Guarantee Scheme (SDGS) with a backstop from the European Stability Mechanism (ESM). In addition, measures should be taken to avoid forbearance, including the transfer of responsibility for emergency liquidity assistance (ELA) from national central banks to the ECB to create a single lender of last resort. Finally, national deposit guarantee schemes should become investors of last resort in the gone-concern capital of the failing bank. This will ensure that the orderly liquidation approach extends to all banks, including those without access to capital markets. Together, these measures would complete Banking Union, promote market discipline, avoid imposing additional burdens on taxpayers, help untie the doom loop between weak banks and weak governments, strengthen the euro and enhance financial stability.

Online reviews on digital platforms are essential in building reputation and mitigating information asymmetry between buyers and sellers. Existing reviews, however, become less informative for products whose attributes frequently change over time. To cope with this challenge, digital platforms have explored reputation update mechanisms that adequately reflect this change. One distinctive mechanism in the context of apps is where reputation, and thus the underlying review history (including volume and valence), is reset with the release of a new app update. Intuitively, apps with low prior reputation are expected to benefit from updating while apps with high prior reputation may suffer. At the same time, apps face the market pressure to get frequently updated. This setup makes the developer’s update decision a double-edged one with updating turning into a strategic reputation management instrument. Additionally, and while the updating decision is typically up to the developer, this decision can also be driven by the hosting platform updating its own technology infrastructure. Exploiting an instrumental variable approach on an App Store panel dataset, we study app demand under reputation resetting driven either by the platform or the developer. We find that when reputation resetting is platform-driven, apps with low prior reputation enjoy a sharp increase in demand while those with high prior reputation experience a sharp decline in demand. We also find a positive association between developer-driven updates and app performance for both high- and low-reputation apps. These results inform platforms and developers about the tension between operational stability and loss of reputation.

By halting the LIBOR's publication, large volumes of fixed income securities, from loans to derivatives, will fall back to an alternative fixing reference. The initial proposal of a SOFR fallback eliminated any degree of subjectivity but opened up funding risk. Overlaying a credit spread over SOFR is a remedy that goes in the right direction, but neither guarantees a robust hedge for funding risk nor prevents accidental wealth transfers. To ensure robust funding risk hedges under all scenarios, we propose to complement the fallback rate by overlaying it with periodic exchanges of Funding Valuation Adjustment (FVA) reset amounts. Our proposal accomplishes the LIBOR indexing’s mandate of transferring banks’ funding risk to counterparties more accurately and robustly than the LIBOR itself while being objective and legally robust. We conclude that the LIBOR transition is an excellent stimulus and opportunity to improve funding strategies and, if implemented with foresight, can make the financial system more resilient and efficient.

We are witnessing the biggest natural experiment in league design in Australian sporting history. Governance models are being stress-tested like never before as financial and legal relations between league administrations and clubs are reset at speed. Australia's sharpest sporting executives face harsh trade-offs and choices between bad and worse outcomes in response to the societal and financial threats of coronavirus. How do they save a league? Or a sport?

Significant reform of remuneration practices has occurred in the past decade since the global financial crisis. These changes respond not just to popular outrage at the perceived disparity of levels of remuneration but also at the belief that remuneration incentives have driven extensive non-compliance with rules, the failure of organisations, and even threatened the systemic sustainability of markets and financial systems. A series of changes has occurred, some aimed at reducing the total level of remuneration and others at the basis on which performance is incentivised, assessed and rewarded. Based on the scientific and outcome evidence to date, it is unclear to what extent any of these will prove to be successful. This article argues that the basis of incentivising, assessing and rewarding performance has to be reset. Current practice does not align with the fundamental shift in the purpose of corporations from maximising shareholder value to maximising stakeholder value and long-term sustainability. This article reviews the evidence on some simple but key questions. Do we need to incentivise workers? Do some current incentives increase the risk of disasters? If so, how do we remove or reduce that risk? The issues of fair distribution and social solidarity arise as fundamental issues to be resolved in responding to the Corona-19 crisis.

Following the Foundation of the World Economic Forum (WEF) and its founder Karl Schwab’s system change call RESET, the aim of this declaration is to provide qualified knowledge about the systemic undesirable developments in our healthcare systems and how general healthcarecould avoid future pandemics and lockdowns. This declaration is the result of the conference “System Change ?!” on July 14th and 15th, 2020, which aimed at creating a network of changing, courageous thinkers and interdisciplinary expertswholead a transition in the healthcare system to focus on preventive precaution in order to avoid future ecological and economic catastrophes. The conference start on July 14 paid tribute to the French revolution advocatingfor alleviating the emerging systemic inequalities in the wake of the COVID-19 pandemic that should be met with yet more harmonious efforts to implement aprecautionary-focused healthcare system change.

This paper shows that households’ mortgage refinancing decisions suboptimally depend on uninformative reference points, imposing a friction to the refinancing channel of monetary policy. I study refinancing behavior in the UK, where on pre-determined dates initial fixed rates reset and mortgagors automatically move onto a reversion rate above market rates. A borrower’s expired fixed rate determines whether failing to refinance is perceived as a loss or as a gain, thus serving as a salient reference point. I find that borrowers for whom inaction implies a relative gain refinance on average 13.4% less than borrowers who face a loss. This evidence is at odds with optimal models of refinancing since future borrowing costs are unrelated to past rates.

While scholars seem united on the sentiment that abolition is the ultimate resting place for capital sentencing in the United States, their arguments vary as to how the system will reach that point. For example, Carol and Jordan Steiker argue that the systemic disarray of capital sentencing in the United States is a result of the U.S. Supreme Court’s attempt to constitutionalize capital sentencing. This Article contends that the U.S. Supreme Court's constitutional jurisprudence that has developed since 1972, when the Court reset capital sentencing in Furman v. Georgia, has aided the Court is gradually narrowing capital punishment, as a result of the controlling “evolving standards of decency” standard. Specifically, the Court has narrowed capital punishment with respect o who may be sentenced to death, how sentences of death are imposed, and how defendants are executed. As a result, this Article contends that the "evolving standards of decency" standard paves the path toward abolition. This Article first shows that incrementalism has led to the current landscape of capital punishment in the United States. Then, the Article contends that an incremental approach to reaching abolition is inherent in the governing “evolving standards of decency” standard and the most effective and realistic way of achieving abolition. Finally, the Article then proposes the next steps in this incremental approach to eliminating the death penalty in America.

We propose a theory of how the process of knowledge creation within firms affects their investment decisions. Firms accumulate knowledge through successive rounds of experimentation in the form of capital expenditures, and reset knowledge when they explore new technologies. This process generates endogenous knowledge cycles, which govern firms' investment. Because risky experimentation makes firms information averse, investment increases but Q decreases as knowledge accumulates. The relationship between investment and Q thus varies over the knowledge cycle and is strongest early in the cycle. We find empirical support for the knowledge channel using a text-based measure of knowledge cycles from public firms. The knowledge channel could explain why investment has been weak in recent years despite high valuation.

Firms embrace diversity, especially with regard to sex. Overtly optimistic predictions of a diversity dividend, some built on sex stereotypes, lead these firms to count on profits that may never materialize. This Article attempts to reset the agenda on how to study corporate board diversity. We can only assess if and how sex diversity yields benefits by understanding the who, what, and where of diversity. Whether sex diversity produces a “diversity dividend” depends on three key factors: (1) the nature of the benefit of including women (whether for their experience or other qualities); (2) the kind of firm and its governance; and (3) the jurisdiction(s) in which the firm operates. Only by further investigating the precise conditions under which diversity will have an effect can we estimate the potential instrumental benefits of sex diversity.

We document that increased competition leads banks to reduce initial rates offered on adjustable-rate mortgages (ARMs) to attract borrowers but increase interest rates after the rate reset and thereby exploit consumer inattention in pricing terms. Consistent with theoretical predictions, we find that banks shroud more with naive borrowers or less financially sophisticated borrowers, who are more subject to behavioral bias. Although competition reduces firm profits and benefits consumers due to price reduction, the effect is small, since firms respond to competition by increasing add-on prices and loans have lower default rates and delayed prepayments since deregulation.

In this report, we examine how a sample of US homeowners changed their credit card spending in response to a predictable drop in their mortgage payment driven by the Federal Reserve’s low interest rate policy that followed the Great Recession. Using a de-identified sample of Chase customers who had a hybrid adjustable-rate mortgages (ARM) and a Chase credit card, we analyze changes in credit card spending and revolving balance leading up to and after mortgage reset. We organize our results into four findings. First, forty-four percent of the homeowners in our sample experienced a large drop in their hybrid ARM payment at reset, which on average represented over 5 percent of their monthly income. Second, homeowners increased their spending by 9 percent in advance of the anticipated drop in their mortgage payments and by 15 percent after reset, despite a considerable drop in housing wealth. Third, homeowners used credit card borrowing to finance 21 percent of their pre-reset anticipatory spending increase, and post–reset they further increased their revolving balances. Over the full two year period, their total spending increase exceeded their mortgage-related savings by 4 percent. Fourth, Homeowners used the savings from lower hybrid ARM payments to make more purchases across all spending categories, notably home improvements and healthcare. Overall, we find that in a declining interest rate environment, the income channel that transmits interest rate policy to homeowners with ARMs is automatic, the consumer response is considerable, and that there are both anticipatory and contemporaneous increases in consumption. Additional research is needed to understand if the income channel also has the intended and expected contractionary effects on consumer spending as policy rates move higher. Armed with a full understanding, housing policy makers could evaluate the policies that influence which type of mortgage (fixed-rate or variable-rate) borrowers choose and should consider the effects these policies will have on the ability of monetary policy to impact personal consumption through the business cycle.

In this paper, I identify shocks to interest rates resulting from two administrative details in adjustable‐rate mortgage contract terms: the choice of financial index and the choice of lookback period. I find that a 1 percentage point increase in interest rate at the time of adjustable‐rate mortgage (ARM) reset results in a 2.5 percentage increase in the probability of foreclosure in the following year, and that each foreclosure filing leads to an additional 0.3 to 0.6 completed foreclosures within a 0.10‐mile radius. In explaining this result, I emphasize price effects, bank‐supply responses, and borrower responses arising from peer effects.

Economic events over the past decade have changed central bank policies in the United States and around the world. The housing and financial markets experienced significant changes as the markets first surpassed historical highs and then underwent a recession grave enough to draw comparison with the Great Depression. To spur recovery, the Federal Reserve first lowered short-term interest rates to near-zero and eventually embarked on several phases of large-scale asset purchases (LSAPs) to lower long-term interest rates and mortgage rates. This paper describes the evolution of the LSAP program and analyzes how interest rates and mortgage rates changed during that time. Both the long-term interest rates and mortgage rates reached historical lows in the post crisis period, primarily due to the Federal Reserve Board's accommodative policies. Two econometric approaches—an event study and a time series model—estimate the market response during each phase of the LSAP program and provide projections of mortgage rates under different shock assumptions. Results suggest that early tapering announcements helped reset interest rates and mortgage rates upwards and any rise in long-term interest rates resulting from unanticipated events (whether related to tapering or not) could lead to further increases in mortgage rates.

The US-Russia relations are entering a new political season in a shape which is far from being perfect. The “reset” is over, and throughout the years 2011 and especially 2012 the relations have worsened again. Political leadership of both countries is irritated and disappointed with each other. Unlike the last four years, neither Russia nor the US will invest much political capital in their relations improvement, and their relative priority will decrease in both countries’ foreign policies. The share of contradictions in the relations surpasses that of positive cooperation again. Yet, the paper argues, a new worsening of the US-Russia relations or their new stagnation over the next years is in neither side’s interests. The US and Russia still do have an important positive agenda to work on, which is crucial for both sides’ vital national interests. It includes, above all, Afghanistan and the Asia Pacific. The major impediment of progress on both dimensions, the author claims, will be in the near- and middle term future a lack of political will on both sides to move the relations forward.

The class action law suit Annie Adams et al - Southern New York, 12-cv-07461, claims that banks increased 6-months USD LIBOR rates on first business days of a month in order to take advantage of mortgage holders due to inflated reset rates on the mortgages. The claims do not seem to be supported by the data. While some point estimates are correct as claimed in the law suit, the claimants do not account for random fluctuation in the LIBOR rates. Standard statistical analysis suggests that the observed differences in means are well within typical fluctuations in the data. Moreover, as some people argue that banks were artificially lowering LIBOR rates in order to make them look financially stronger in the crisis of 2007/2008, that effect would actually help the claimants as it would lower their reset mortgage rates.

This paper presents a reduced-form barrier model for the optimal principal reset in a loan modification, thereby maximizing the loan value to the lender bank and minimizing the likelihood of foreclosure by the homeowner. Reducing the loan-to-value (LTV) ratio will reduce the present value of future payments on the loan, but will also reduce the probability of default, thereby saving foreclosure losses. The optimal trade-off of these two countervailing effects will pinpoint the optimal LTV at which the loan must be reset. We present a reduced-form barrier option decomposition of the loan value that makes the optimization of LTV easy to implement. An extension of the model is shown to account for varying growth rate assumptions about house prices. The model in this paper accounts for the homeowner's ability to pay and willingness to pay, and uses the framework to model shared-appreciation mortgages (SAMs).

We investigate the relationship between chief executive officer (CEO) compensation and innovation. In an empirical examination of compensation contracts of S&P 400, 500, and 600 firms we find that long-term incentives in the form of options are positively related to patents and citations to patents. In addition, convexity of options has a positive effect on innovation. We also find no relationship between pay for performance sensitivity (PPS) with patents and citations to patents while we did discover a positive relationship between these and golden parachutes. Finally, we show that subsequent to project failure managers’ compensation contracts are reset favorably. We provide support for the theory that compensation contracts that offer long-term commitment and protection from failure are more suitable for innovation.

An Eviews program is provided that performs Wooldridge’s Ramsey’s RESET for a Negative Binomial Regression using Eviews. Wooldridge’s example is replicated.

In this paper, I use a generalization of the Calvo NKPC to study implications of the price reset hazard function for inflation persistence. I first replicate the Whelan(2007)'s finding that the generalized NKPC fails to account for the positive coefficient of lagged inflation in a typical reduced-form Phillips curve regression, and then show that it is the 4-period-Taylor-contract hazard function that gives rise to this result. In contrast, an empirically-based aggregate price reset hazard function can generate simulated data that are consistent with inflation gap persistence found in the US CPI data. I conclude that a price reset hazard plays a crucial role for generating realistic inflation dynamics.

The market for Auction Rate Securities (ARS) made headlines during the second week of February 2008 when auctions, at which the bonds interest rates are reset, experienced a wave of “failures.” Contrary to headlines that attribute the failures to a “frozen” market and/or to “irrationality” on the part of market participants, we find that (1) even at their height, less than 50% of ARS bonds experienced auction failures, (2) the likelihood of auction failure was directly related to the level of the bonds ”maximum auction rates” that cap the bond yields, and (3) using an empirical model of market clearing yields, the implied market clearing yields of bonds with failed auctions were significantly above their maximum auction rates. We interpret this evidence to mean that auctions failed because investors rationally declined to bid for bonds for which required market yields exceeded their maximum auction rates. We further find that ARS yields were generally higher than yields of various cash equivalent investment alternatives including treasury bills (T-bill), certificates of deposits (CD), money market funds (MMF), and Variable Rate Demand Obligations (VRDO). We interpret this latter evidence to mean that investors priced the possibility of auction failure into ARS yields.

In this paper, we use the recent collapse of the ARS market as the laboratory to study issues on the fragility of financial innovations and systemic risks. We find strong evidence of investor runs for liquidity - partly caused by a self-fulfilling panic - and coordination failures among major broker-dealers in providing liquidity support. The two forces amplify each other dynamically, resulting in the market collapse. We also find that the likelihood of auction failures and ARS reset rates depend significantly on both the rule and the level of maximum auction rates; that, as predicted by auction theories, there is also strong evidence for underpricing after dealers withdrew their liquidity supports; and that inter-auction secondary market liquidity may encourage aggressive bidding that increases the reset rates.

Some observers have argued that minority borrowers and neighborhoods were targeted for expensive credit in 2004-06, the peak period for subprime lending. To investigate this claim, we take advantage of a new data set that merges demographic information on subprime borrowers with information on the mortgages they took out. In a sample of more than 75,000 adjustable-rate mortgages, we find no evidence of adverse pricing by race, ethnicity, or gender in either the initial rate or the reset margin. Indeed, if any pricing differential exists, minority borrowers appear to pay slightly lower rates, as do those borrowers in Zip codes with a larger percentage of black or Hispanic residents or a higher unemployment rate. Mortgage rates are also lower in locations that previously had higher rates of house price appreciation. These results suggest some economies of scale in subprime lending. Yet there are important caveats: we are unable to measure points and fees at loan origination, and the data do not indicate whether borrowers might have qualified for less expensive conforming mortgages.

In this paper, we use the recent collapse of the ARS market as the laboratory to study issues on the fragility of financial innovations and systemic risks. We find strong evidence of investor runs for liquidity - partly caused by a self-fulfilling panic - and coordination failures among major broker-dealers in providing liquidity support. The two forces amplify each other dynamically, resulting in the market collapse. We also find that the likelihood of auction failures and ARS reset rates depend significantly on both the rule and the level of maximum auction rates; that, as predicted by auction theories, there is also strong evidence for underpricing after dealers withdrew their liquidity supports; and that liquidity in the non-auction secondary market may encourage aggressive bidding that increases the reset rates.

In this paper we present a generic method for the Monte-Carlo pricing of (generalized) auto-callable products (aka. trigger products), i.e., products for which the payout function features a discontinuity with a (possibly) stochastic location (the trigger) and value (the payout).The Monte-Carlo pricing of the products with discontinuous payout is known to come with a high Monte-Carlo error. The numerical calculation of sensitivities (i.e., partial derivatives) of such prices by finite differences gives very noisy results, since the Monte-Carlo approximation (being a finite sum of discontinuous functions) is not smooth.Additionally, the Monte-Carlo error of the finite-difference approximation explodes as the shift size tends to zero.Our method combines a product specific modification of the underlying numerical scheme, which is to some extent similar to an importance sampling and/or partial proxy simulation scheme and a reformulation of the payoff function into an equivalent smooth payout.From the financial product we merely require that hitting of the stochastic trigger will result in an conditionally analytic value. Many complex derivatives can be written in this form. A class of products where this property is usually encountered are the so called auto-callables, where a trigger hit results in cancellation of all future payments except for one redemption payment, which can be valued analytically, conditionally on the trigger hit. From the model we require that its numerical implementation allows for a calculation of the transition probability of survival (i.e., non-trigger hit). Many models allows this, e.g., Euler schemes of Ito processes, where the trigger is a model primitive. The method presented is effective across a large range of cases where other methods fail, e.g. small finite difference shift sizes or short time to trigger reset (approaching maturity); this means that a practitioner can use this method and be confident that it will work consistently.

This paper consists of four short pieces on the subprime mortgage market. Based upon a proprietary database, LoanPerformance, of 80 million mortgage loans originated from January 1999 to July 2007, these pieces demonstrate: (1) the subprime loan market has contributed to a net gain in homeownership; (2) the distinction between subprime and prime borrowers cannot be easily made on the basis of FICO scores and the wide variety of products used by subprime borrowers are also used by prime borrowers; and (3) foreclosures on subprime mortgage loans that are fixed-rate, variable-rate, and hybrids with interest-rate resets are already a serious problem, which means that while hybrids may exacerbate mortgage problems if interest rates reset upwards in 2008 and 2009, the product itself is not the cause of those problems.

This article studies the behavior of an individual who can repeatedly alternate between two occupations. Such a career option is analogous to an exotic derivative security: an American reset option. Despite infinite opportunities to change occupations, an individual faced with mobility costs is shown to always allow time to go by between occupation changes. In addition, for economically motivated calibrations, the average number of occupation changes declines steadily over time. These results mirror the behavior of real-world individuals, who change occupations more often in the early stages of their professional lives. Finally, it is proved analytically that the individual is unambiguously more reluctant to change occupations when she does not have the assurance that she may return to her initial occupation at a later date. The model demonstrates that the flexibility of repeated career options adds much value over their once-in-a-lifetime counterparts.

Computing the optimal portfolio policy of an investor facing capital gains tax is a challenging problem: because the tax to be paid depends on the price at which the security was purchased (the tax basis), the optimal policy is path dependent and the size of the problem grows exponentially with the number of time periods. A popular approach to address this problem is to approximate the exact tax basis by the weighted average purchase price. Our contribution is threefold. First, we show that the structure of the problem has several attractive features that can be exploited to determine the optimal portfolio policy using the exact tax basis via nonlinear programming. Second, we characterize the optimal portfolio policy in the presence of capital-gains tax when using the exact tax basis. Third, we show that the certainty equivalent loss from using the average tax basis instead of the exact basis is very small: it is typically less than 1% for problems with up to ten periods, and this result is robust to the choice of parameter values and to the presence of transaction costs, dividends, intermediate consumption, labor income, tax reset provision at death, and wash-sale constraints.

We study price dynamics in a service market environment where identical service providers dynamically reset their prices to price discriminate informed and uninformed consumers. A semi-Markovian game model for dynamic pricing is developed and a new multi-time scale actor-critic algorithm is proposed for multi-agent reinforcement learning. Also, experimental results on convergence to a Nash equilibrium are presented.

This paper examines the practice of resetting of the terms of previously-issued executive stock options. We identify the properties of the typical reset option, characterize the firms that have reset options, and develop a model to value options that may be reset. In our sample of 396 executives whose options had terms reset in the 1992-95 period, a large majority ad exercise prices reset to the market price. This resulted in a reduction of the typical option's exercise price by about 40%. Slightly less than half of these options also had their maturities extended, generally receiving a new expiration of 10 years. We find that resetting has a strong negative relationship with firm performance even after correcting for industry performance. Resetting is also significantly more common among small firms than among large firms. However, few other industry- or firm-specific factors appear to matter. Finally, we find that the possibility of resetting does not have a large impact on the ex-ante value of an option award, but the ex-post gain can be substantial.