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Paper eres2010_366:
RISK TAKING, SECURITIZATION AND THE OPTION TO CHANGE STRATEGY

id eres2010_366
authors Van Order, Robert; Lai, Rose Neng
year 2010
title RISK TAKING, SECURITIZATION AND THE OPTION TO CHANGE STRATEGY
source 17th Annual European Real Estate Society Conference in Milan, Italy
summary This paper analyzes the risk-taking behavior of financial intuitions that have guarantees and/or institutions that find it beneficial to develop a reputation for not taking risk. It focuses on two questions: Is it rational for them to take on less risk than they can get away with, and if it is rational, under what conditions will they shift strategies and increase their risk? To answer the question we allow for future benefits from survival in the form of “franchise value.” With franchise value they might take less risk than they are allowed; however, if they experience large enough negative shocks, they reach a tipping point where they will change their strategy discontinuously, and “gamble for resurrection.” For instance, a decline in franchise due to increased competition can lead to abrupt changes in risk-taking. This is a possible explanation for changes in quality of pools of securitized loans. Similarly a decline capital can lead financial institutions ramp up risk-taking.
keywords Risk-takingFinancial insitutionssecuritization
series ERES:conference
email rvo@gwu.edu
more http://www.eres2010.org/index.asp?page=papers_download
content file.ppt (50,176 bytes)
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ratings
session Real Estate Risk Management (1)
last changed 2010/08/04 20:47
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