Wholesale funding, coordination, and credit risk

We use the global games approach to study key factors affecting the credit risk associated with roll-over of bank debt. When creditors are heterogenous, these include the extent of short-term borrowing and capital market liquidity for repo financing. Specifically, in a model with a large institutional creditor and a continuum of small creditors independently making their roll-over decisions based on private information, we find that increasing the proportion of short-term debt and/or decreasing market liquidity reduces the willingness of creditors to roll over. This raises credit risk in equilibrium. The presence of a large creditor does not always reduce credit risk, however, unless it is better informed

Optimal Estimation of a Classical Force with a Damped Oscillator in the non-Markovian Bath

We solve the optimal quantum limit of probing a classical force exactly by a damped oscillator initially prepared in the factorized squeezed state. The memory effects of the thermal bath on the oscillator evolution are investigated. We show that the optimal force sensitivity obtained by the quantum estimation theory approaches to zero for the non-Markovian bath, whereas approaches to a finite non-zero value for the Markovian bath as the energy of the damped oscillator goes to infinity.Comment: 5 pages, 4 figure