Credit Default Swap Data, Contagion and Financial Resilience

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The resilience of the UK financial system is of vital importance to UK society, and more specifically, to the corporations and fund managers that invest on behalf of our pension funds. It is apparent that our understanding of these systems leaves many questions unanswered and that there are fundamental issues that need to be addressed. If the research base is to inform policy decisions in any sort of adequate way there needs to be a strong development of insights from many disciplinary directions, which then need to be drawn together to be effective. This application is a part of the Oxford-Man ambition to develop tools and high quality insights that can collectively assist the wider project of enhancing the resilience of the UK financial system. This application brings together two interrelated projects "Containing Financial Crises" and "CDS Markets and Financial Contagion", and will allow us to put together the talents of some outstanding researchers at different points in their careers. This application is very timely because, at a wider level, the Oxford-Man Institute is engaging with the Bank of England and other academic partners, in a collaborative study to develop understanding of the effects of macro-prudential capital tools on financial stability. As such, it will provide an excellent environment to nurture this research and ensure strong impact.Morrison and Wilson's project will look at understanding interbank connectedness and its relation to financial stability and financial contagion.Schweikhard and Tsesmelidakis propose to develop their novel structural model that is capable of estimating the standalone credit quality of a firm, and use it to look at designing a market-based systemic risk tax, bank capital regulation, what policy actions or announcements are most useful in arresting the financial crises, and the side effects associated with the "too big to fail" policy.