BEGIN:VCALENDAR
VERSION:2.0
PRODID:-//Talks.cam//talks.cam.ac.uk//
X-WR-CALNAME:Talks.cam
BEGIN:VEVENT
SUMMARY:Dynamics of the Leverage Cycle - Farmer\, JD (University of Oxford
 )
DTSTART:20140826T104500Z
DTEND:20140826T111500Z
UID:TALK53865@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:We investigate the leverage cycle in the context of several di
 fferent models\, ranging from more realistic agent-based models to simple 
 reduced form models with minimal assumptions.  These models build on earli
 er work on the leverage cycle but in a more explicit dynamic context.  The
 y make it clear how managing a portfolio with a leverage target automatica
 lly gives rise to endogenous dynamics\, coupling leverage and volatility a
 nd inducing chaotic oscillations driving clustered volatility and heavy ta
 iled risk.   As one moves from countercyclical to procyclical leverage\, o
 r from longer time horizons to shorter time horizons\, volatility increase
 s and stability decreases.  Policies such as Basel II and III can have uni
 ntended consequences\; while they can be effective for a single investor a
 cting alone\, when all investors use them they can be destabilizing.  I wi
 ll also discuss the relationship to the problem in the network context\, w
 here the same principle applies\, i.e.\, diversification of risk by indivi
 duals often creates systemic risk.  Finally\, I will discuss possible stab
 ilizing policies\, such as impact-adjusted accounting.\n
LOCATION:Seminar Room 1\, Newton Institute
END:VEVENT
END:VCALENDAR