Bank deposit insurance and business cycles: controlling the volatility of risk-based premiums

Proposals to make deposit insurance risk-based need to consider how premiums would fluctuate over the business cycle. This paper derives a new deposit insurance contract that has the following three features: 1) it is fairly priced in the sense that the insurer conveys no subsidy to the bank; 2) the insurance rate can be made as stable as desired by lengthening the "average" maturity of the contract; 3) the rate can be frequently updated as new information regarding the bank's financial condition is obtained. These characteristics are achieved with a contract that is a combination of several long-term ones whose contract intervals partially overlap. Relative to a standard, short-term contract, this "moving average" contract reduces the volatility of a bank's insurance rates and avoids payment of excessively high premiums during times of financial distress. ; Estimates of fair insurance rates under such a contract are presented for 42 banks based on data over the period 1987 to 1996. While lengthening the average maturity of the contract reduces the volatility of insurance rates, it also increases the average level of rates since the insurer requires a greater premium for systemic risk. The paper also finds that the distribution of fair insurance rates across banks is skewed, with most banks paying relatively low rates and a small minority of banks paying much higher ones.Risk management ; Deposit insurance

Inflation expectations, real rates, and risk premia: evidence from inflation swaps

This paper develops a model of the term structures of nominal and real interest rates driven by state variables representing the short-term real interest rate, expected inflation, inflation’s central tendency, and four volatility factors that follow GARCH processes. We derive analytical solutions for nominal bond yields, yields on inflation-indexed bonds that have an indexation lag, and the term structure of expected inflation. Unlike prior studies, the model’s parameters are estimated using data on inflation swap rates, as well as nominal yields and survey forecasts of inflation. The volatility state variables fully determine bonds’ time-varying risk premia and allow for stochastic volatility and correlation between bond yields, yet they have small effects on the cross section of nominal yields. Allowing for time-varying volatility is particularly important for real interest rate and expected inflation processes, but long-horizon real and inflation risk premia are relatively stable. Comparing our model prices of inflation-indexed bonds to those of Treasury Inflation Protected Securities (TIPS) suggests that TIPS were significantly underpriced prior to 2004 and again during the 2008-2009 financial crisis.Inflation (Finance) ; Interest rates ; Asset pricing

Analytical Model of a Particular Type of Positive Displacement Blower

Many papers exist in literature which deal with the twin screw compressor; this usually has two different rotors, a male and a female, and is commonly used to produce compressed gas for industrial uses. However, a different type of positive displacement rotary compressor with two screws is sometimes used; one of its typical applications is in car engine supercharging. Present paper deals with the latter type, which is defined as a two screw blower. This blower has two identical helical rotors, each with three lobes. The kinematics and the geometry of the rotors are analysed here, and a complete mathematical model for the rotor is defined. Moreover different possible shapes of the rotors, depending on the design parameters, are analysed and the limitations in the choice of the design parameters are presented. Finally an analysis of the theoretical specific slipping of the rotors is presented, showing which zones of the profile are the most stressed. This model will be useful for further studies on rotor pressure loads and blower dynamics

Estimating real and nominal term structures using Treasury yields, inflation, inflation forecasts, and inflation swap rates

This paper develops and estimates an equilibrium model of the term structures of nominal and real interest rates. The term structures are driven by state variables that include the short term real interest rate, expected inflation, a factor that models the changing level to which inflation is expected to revert, as well as four volatility factors that follow GARCH processes. We derive analytical solutions for the prices of nominal bonds, inflation-indexed bonds that have an indexation lag, the term structure of expected inflation, and inflation swap rates. The model parameters are estimated using data on nominal Treasury yields, survey forecasts of inflation, and inflation swap rates. We find that allowing for GARCH effects is particularly important for real interest rate and expected inflation processes, but that long–horizon real and inflation risk premia are relatively stable. Comparing our model prices of inflation-indexed bonds to those of Treasury Inflation Protected Securities (TIPS) suggests that TIPS were underpriced prior to 2004 but subsequently were valued fairly. We find that unexpected increases in both short run and longer run inflation implied by our model have a negative impact on stock market returns.Interest rates ; Inflation (Finance) ; Asset pricing

Deviations Induced by Tool Sharpening in the Profile of Three Screw Pump Rotors

Three screw pumps represent an important family of positive displacement rotary pumps. They are quite easy to construct, even if the use of a shaped milling cutter for the rotor machining can cause some problems when the tool is not new. In fact the sharpening of the tool modifies the total geometry of the milling cutter by reducing its diameter. The shape of the single cutter does not change, but the cutter radial position is shifted towards the tool center. This causes deviations in the profile cut and the screws consequently need a long breaking in. In this paper the problem is analyzed from a quantitative point of view, using a method that allows us to determine the machining error as a function of the tool geometry variation. Moreover some alternative solutions to this problem are suggested

Non Undercutting Conditions in Internal Gears

Many contributions regarding internal gear theory exist in literature. They mainly consider the problem of undercutting by means of analytical methods applied to specific and limited cases. The present paper deals with a general method showing the analytical condition for avoiding undercutting by the use of the concept of the limit curve. In particular the analytical determination of the limit curve allows the designer to obtain significant graphical representations of the design limits

Are contingent convertibles going-concern capital?

Contingent convertibles (CoCos) are intended to either convert to new equity or be written down prior to failure while a bank is a going concern. Yet, in the first actual test case, CoCos never converted before its bank failed. We develop a model that predicts that CoCos lead to less (more) extreme stock returns and have yields greater than (similar to) standard subordinated debt yields if investors do (do not) expect them to convert or be written down prior to failure. These predictions are tested using data on CoCos issued by European banks during 2011 to 2017. We find evidence that equity conversion CoCos reduce stock return variance and several other measures of downside risk, consistent with the perception that they are going-concern capital. However, we also provide event study evidence that recent regulatory actions reduced the CoCo – subordinated debt yield spread, which indicates a diminished investor belief that CoCos are going-concern capital

Pre-shaping motion input for a rotating flexible link

The interest in the design of manipulators for space operations with a light structure has grown meaningfully in comparison with rigid manipulators, even if these flexible manipulators are unavoidably characterized by a not negligible structural flexibility. This paper deals with the first phase of a project financed by a grant from the Italian Space Agency (ASI) which is concerned with the setting up of an open loop control for a planar manipulator with flexible linkages. In this phase, the project is subdivided into two parts: on one hand, different command inputs have been proposed for point to point operations; on the other hand, dynamic simulations have been carried out by using a multibody model with flexible parts, in order to evaluate the residual vibrations due to the selected command input at the end of the motion. These command inputs will be applied to the actual manipulator, which is already available, in a future phase of the project. The command inputs, which are described here, are based on both the convolution of special impulse inputs suitably chosen on the basis of the system natural frequencies and the reduction of impulsive inertia forces by means of a suitable algorithm proposed here and derived from cam design. The simulations are carried out by commercial software for the study of multibody systems and custom programs for the command input implementation. The results obtained for the residual vibrations are compared to those obtained by conventional command inputs in the simulations on the same model