Research Summary
Research Summary
The Connection Between Volatility and Leverage
Description
Professor Siriwardane has co-developed a new econometric model that captures the link between equity volatility and financial leverage, driven by the desire to incorporate the record levels of both leverage and volatility that characterized the 2008 financial crisis into standard volatility models. His model identifies precautionary capital, a new measure of systemic risk that quantifies the efficacy of such preventive measures as leverage limits to avoid future financial crises.