The last three decades have seen rapid growth in the number and variety of financial products issued. This paper studies innovation in financial products using a combination of granular data on security issuance and a model of allocation of financial...

Wealthy individuals typically hold large positions in illiquid assets. We examine this phenomenon using a dynamic model of portfolio choice in oligopolistic financial markets. At the individual level, we characterize a trade-off between rent extraction and risk management that induces...

The modern financial system features complicated financial intermediation chains, with each layer performing a certain degree of credit/maturity transformation. We develop a dynamic model in which an entrepreneur borrows from overlapping-generation households via layers of funds, forming a credit chain....

Should regulators reveal the models they use to stress test banks? In our setting, revealing leads to gaming, but secrecy can induce banks to underinvest in socially desirable assets for fear of failing the test. We show that although the...

We propose a model of strategic debt renegotiation in which businesses are sequentially interconnected through their liabilities. This financing structure, which we refer to as a debt chain, gives rise to externalities, as a lender's willingness to provide concessions to...

Should regulators encourage the migration of trade from over-the-counter (OTC) to centralized markets? To address this question, we study a model in which banks make costly decisions to participate in an OTC market, a centralized market, or both markets at...