Real estate is a major component of China’s national wealth, serving as a key store of value. Property taxes potentially influence households’ belief in the stability of the housing market, resulting in varying effects of such taxes. This paper constructs an equilibrium model of stores of value to examine these effects under diverse beliefs. The results show that property taxes can constrain the growth of housing prices if households maintain their belief in the future stability of housing values. However, damaging this belief would lead to a safety trap with a decline in output. The paper also demonstrates that using tax revenue to finance government bond issuance can be an effective way to lower housing prices and increase output.

Quaternionic automorphic representations are one attempt to generalize to other groups the special place holomorphic modular forms have among automorphic representations of $\mathrm {GL}_2$. Here, we use ‘hyperendoscopy’ techniques to develop a general trace formula and understand them on an arbitrary group. Then we specialize this general formula to study quaternionic automorphic representations on the exceptional group $G_2$, eventually getting an analog of the Eichler–Selberg trace formula for classical modular forms. We finally use this together with some techniques of Chenevier, Renard and Taïbi to compute dimensions of spaces of level-$1$ quaternionic representations. On the way, we prove a Jacquet–Langlands-style result describing them in terms of classical modular forms and automorphic representations on the compact-at-infinity form $G_2^c$.

The main technical difficulty is that the quaternionic discrete series that quaternionic automorphic representations are defined in terms of do not satisfy a condition of being ‘regular’. A real representation theory argument shows that regularity miraculously does not matter for specifically the case of quaternionic discrete series.

We hope that the techniques and shortcuts highlighted in this project are of interest in other computations about discrete-at-infinity automorphic representations on arbitrary reductive groups instead of just classical ones.

This paper provides a new market consistent approach to the valuation of no negative equity guarantees and equity release mortgages. The paper provides a new approach to the estimation of volatility inputs. The proposed approach to volatility produces a volatility term structure that is dependent on the age and gender of the borrower. Illustrative valuations are provided based on the Black ’76 put pricing formula and mortality projections based on the M5 Cairns–Blake–Dowd mortality model. Results show interesting ramifications for industry practice and prudential regulation.

Financial markets derive their political and societal legitimacy from their ability to produce fair and accurate prices. However, reviewing the literature on how stock exchanges price securities, we find an inherent tension between market organization and price disclosure, which is borne out by this special issue's historical case studies.

Irresponsible lending practices on the part of financial institutions and proliferation of tradable derivatives were key causal agents of the 2008 financial crisis. However, it is less clear why, historically, loose credit arrangements were so widespread. Somewhat misleadingly, much conjecture has laid blame at the feet of financial institutions themselves. While it is true that duplicitous and even corrupt lending practices were consequential antecedents of the crisis, a legacy commitment to certain – laudable – elements of New-Dealism created context for these elements to become established. To understand really what went wrong, it is necessary to look back before the 2000s and appreciate the interaction that was occurring between a long-term policy commitment to neoliberalism and piecemeal/fragmented application of approaches that aimed to assist financially disadvantaged people. Using the analogy of heart-attack pathology to guide some of its analysis, this essay argues for better policy-integration.

For most of its history Amsterdam securities trading was entirely unregulated and spread over various venues frequented by different social groups, handicapping price transparency. A public price current emerged only in 1796 and then with wide bid-ask spreads to protect margins. To combat the confusion a curious pricing method, the mid-price system, emerged during the nineteenth century. Tied to a market microstructure centring on hoekmannen (market makers), this system transited effortlessly from a public market into a monopoly by 1913, self-governing, still without any government regulation, and offering wide rent-seeking opportunities.

Is the trust that participants have in their pension fund affected by its funding ratio (i.e., asset/liabilities ratio)? Based on survey, carried out in October 2021, among Dutch pension fund participants we link our survey data to the funding ratio of their pension fund as registered by the pension regulator. First, we show that the level of the funding ratio of their pension fund is positively associated with the trust level of participants. Pension funds with large buffers are associated with a high level of trust. Second, sub-group analyses show that the trust of younger participants is weakly related to the level of the funding ratio and this association is strong and positive for older (55+)/retired participants. It suggests that an interest in or awareness about the financial health of one's pension fund is associated with a higher responsiveness of participants in terms of trust. And third, firm-based pension funds enjoy a higher level of trust compared to sector-based pension funds.

This paper studies the role of monetary policy for the dynamics of US mortgage debt, which accounts for the largest part of household debt. A time-varying parameter vector autoregressive (VAR) model allows us to study the variation in the sensitivity of mortgage debt to monetary policy. We find that an identically sized policy shock became less effective over time. We use a dynamic stochastic general equilibrium model to show that a fall in the share of adjustable rate mortgages (ARMs) can replicate this finding. Calibrating the model to the drop in the ARM share since the 1980s yields a decline in the sensitivity of housing debt to monetary policy which is quantitatively similar to the VAR results. A sacrifice ratio for mortgage debt reveals that a policy tightening directed toward reducing household debt became more expensive in terms of a loss in employment. Counterfactuals show that this result cannot be attributed to changes in monetary policy itself.

We field a large online survey to study preferences and hypothetical product choices for phased withdrawal accounts and compare their demand to the demand of annuities. We find that most individuals prefer phased withdrawal accounts with dynamic withdrawal rates and equity-based asset allocation. Additionally, when offered the opportunity to exchange the phased withdrawal account with an annuity, most individuals decline to annuitize. Our results suggest that policymakers should consider offering combined solutions of phased withdrawals and annuities. Retirees who are averse to full annuitization could preserve some of their accumulated wealth while also acquiring protection against longevity risk.

Modeling taxation of Variable Annuities has been frequently neglected, but accounting for it can significantly improve the explanation of the withdrawal dynamics and lead to a better modeling of the financial cost of these insurance products. The importance of including a model for taxation has first been observed by Moenig and Bauer (2016) while considering a Guaranteed Minimum Withdrawal Benefit (GMWB) Variable Annuity. In particular, they consider the simple Black–Scholes dynamics to describe the underlying security. Nevertheless, GMWB are long-term products, and thus accounting for stochastic interest rate has relevant effects on both the financial evaluation and the policyholder behavior, as observed by Goudenège et al. (2018). In this paper, we investigate the outcomes of these two elements together on GMWB evaluation. To this aim, we develop a numerical framework which allows one to efficiently compute the fair value of a policy. Numerical results show that accounting for both taxation and stochastic interest rate has a determinant impact on the withdrawal strategy and on the cost of GMWB contracts. In addition, it can explain why these products are so popular with people looking for a protected form of investment for retirement.

China and the United States are the two largest emitters of greenhouse gases, making them pivotal players in global climate negotiations. Within the coming decade, however, India is set to become the most important counterpart to the United States, as it overtakes China as the country with the most at stake depending on the type of global burden-sharing agreements reached, thus becoming a member of the ‘Climate G2’. We create a hypothetical global carbon market based on modelling emissions reduction commitments across countries and regions relative to their marginal abatement costs. We then analyse net financial flows across a wide range of burden-sharing agreements, from pure ‘grandfathering’ based on current emissions to equal-per-capita allocation. Among the four largest players – the United States, the EU-27, China, and India – it is China that would currently be the largest net seller of emissions allowances in all but the grandfathered scenario. The United States would be the largest net buyer. However, India is poised to take China’s position by around 2030. That leaves the United States and India as the two major countries with most to gain and lose, depending on the type of climate deal reached.

In Britain around 1900, established financial institutions for long-term savings such as life assurers, and pension funds which were just in their formative phase, did not make material allocations to publicly quoted equity markets or ordinary shares; long-established life assurers, for example, had less than 3 per cent allocated to the asset class (Baker and Collins 2003). Over the following 100 years, this picture radically changed, with equities emerging as the central asset class for many institutional investors and the term ‘the cult of (the) equity’ was coined (Scott 2002; Avrahampour 2015). As the century progressed, institutional investors superseded private individuals and became the dominant holders of British publicly quoted companies (Cheffins 2010). Despite the attractions of the asset class and their generally high returns, within a relatively short period by the end of the century, institutional equity exposure had peaked and was in decline both at life assurers and within pension funds. Here we highlight, and link together, the key actuarial (Turnbull 2017) and investing (Morecroft 2017) ideas that were influential in these developments. We also identify the main individuals who were instrumental in the application of equity investing to institutional portfolios. The article has an emphasis towards years from 1920 to 1960 when most of the changes to investment practice and actuarial theory occurred.

Choices regarding the disposition of wealth at retirement can have substantial implications for retirement income security. We analyze the factors determining annuity payout option choices within the context of a public sector defined pension plan with no default annuity option. Using combined administrative records and survey data, we explore the role of individual and household characteristics as well as risk preferences, time preferences, and financial literacy. We also document retiree well-being and satisfaction with retirement decision making. The evidence is consistent with predictions over which households might benefit most from each annuity option. Comparing retirees who chose different types of annuities, we find that these groups of retirees report very different levels of well-being in retirement. All retirees report lower levels of retirement income security over time, with strong differences among those who chose different types of annuities.

The global banking system can be shown to be a Complex Adaptive System that exhibits phase transitions from time to time. These phase transitions can result in significant financial losses to the community that we estimate to be much more significant than losses occurring during “business as usual” periods. In this paper, we argue that the significant losses arising from phase transitions in the banking system requires a very different approach to regulation than the current Basel regime, and that there is a need to transition the Basel regime from a Federation of Systems to a System of Systems. We demonstrate that the World Health Organisation’s recent management system for pandemics is ideally suited for management of the global banking system and would have greater potential to control the phase transition losses than the current Basel system.

Despite extensive literature on contributing factors to the high commodityprices and volatility in the recent years, few have examined these causalfactors together in one analysis. We quantify empirically the relativeimportance of three factors: global demand, speculation, and energyprices/policy in explaining corn price volatility. A structural vectorauto-regression model is developed and variance decomposition is applied tomeasure the contribution of each factor in explaining corn price variation.We find that speculation is important, but only in the short run. However,in the long run, energy is the most important followed by global demand.

The Pension Benefit Guaranty Corporation (PBGC) insures private sector defined benefit (DB) pension plans, when an employer becomes insolvent and is unable to pay the pension liabilities. In principle, the insurance premiums collected by PBGC should be sufficient to cover potential losses; this would ensure that PBGC could pay the insured benefits of terminated pension plan without additional external funding (e.g., from taxpayers). Therefore, the risk exposure of the PBGC from insuring DB pension plans arises from the probability of the employer insolvencies; and the terminating plans’ funding status (the excess of the value of the insured plan liabilities over the plan assets). Here we explore only the second component, namely the impact of plan underfunding for the operation of the PBGC. When a DB plan is fully funded, the PBGC's risk exposure for an ongoing plan is low even if the plan sponsor becomes insolvent. Thus the questions most pertinent to the PBGC are: what key risk factors can produce underfunding in a DB plan, and how can these risk factors be quantified? We discuss the key risk factors that produce DB pension underfunding, namely, investment risk and liability risk. These are interrelated and must be considered simultaneously in order to quantify the risk exposure of a DB pension plan. We propose that an integrated risk management model (an Integrated Asset/Liability Model) can help better understand DB pension plan funding risk. We also examine the Pension Insurance Modeling System developed by the PBGC in terms of its own use of some of the building blocks of an integrated risk management model.

Housing finance and, specifically, the subprime private label securitisation market in the US, was at the epicentre of the global financial crisis. Excessive debt expansion in the run-up to the crisis resulted in credit risk, under-identified and mispriced ex ante, and in systemic risk. This paper considers the role of financial innovation in debt markets and the changing market structure of securitisation in the evolution of the US housing price bubble. New financing vehicles contributed to growing risk, but the more salient factor was the change in the structure of securitisation, which led to unsustainable levels of debt.