We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...

We propose implied spreads (IS) and normalized implied spreads (NIS) as simple measures to characterize option prices. IS is the credit spread of an option’s implied bond, the portfolio long a risk-free bond and short a put option. NIS normalizes IS by the risk-neutral default probability and...

We propose implied spreads (IS) and normalized implied spreads (NIS) as simple measures to characterize option prices. IS is the credit spread of an option's implied bond, the portfolio long a risk-free bond and short a put option. NIS normalizes IS by the risk-neutral default probability and...

We propose implied spreads (IS) and normalized implied spreads (NIS) as simple measures to characterize option prices. IS is the credit spread of an option's implied bond, the portfolio long a risk-free bond and short a put option. NIS normalizes IS by the risk-neutral default probability and...

Sweeping changes in financial regulation have occurred throughout much of the world following the global credit crisis that began in 2007. Shifts in the regulatory paradigm governing derivatives have been especially dramatic and have already altered the landscape for interest rate derivatives...

Total notional principal outstanding for single-name credit default swaps (CDSs) based on corporate and sovereign reference entities grew significantly through June 2011, but, following the global credit crisis and Eurozone sovereign debt crisis, notional amounts on single-name CDSs outstanding...

A currency board is a monetary institution that issues notes and coins which are fully convertible into a reserve currency at a fixed rate on demand. Reserves are equal to 100 per cent, or slightly more, of a board's notes and coins. There have been over seventy currency boards and all have...

During the past year, the press has had a field day pummeling “derivatives.” The Wall Street Journal has even joined in the fun. The grist for the journalists' mills has been provided by the big losses on derivatives reported by Metallgessellschaft, Proctor & Gamble, Air Products, Gibson...