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Regulatory changes are increasing the importance of collateral agreements and credit issues in over-the-counter derivatives transactions. This paper considers the nature of derivatives collateral agreements and examines the impact of collateral agreements, two-sided credit risk, funding costs,...
Persistent link: https://www.econbiz.de/10013064604
Prior to 2007, derivatives practitioners used a zero curve that was bootstrapped from LIBOR swap rates to provide “risk-free” rates when pricing derivatives. In the last few years, when pricing fully collateralized transactions, practitioners have switched to using a zero curve bootstrapped...
Persistent link: https://www.econbiz.de/10013062057
A company's credit default swap spread is the cost per annum for protection against a default by the company. In this paper we analyze data on credit default swap spreads collected by a credit derivatives broker. We first examine the relationship between credit default spreads and bond yields...
Persistent link: https://www.econbiz.de/10013089717
The “practitioner Black-Scholes delta” for hedging options is a delta calculated from the Black-Scholes-Merton model (or one of its extensions) with the volatility parameter set equal to the implied volatility. As has been pointed out by a number of researchers, this delta does not minimize...
Persistent link: https://www.econbiz.de/10012971072
In 1976 Black and Cox proposed a structural model where an obligor defaults when the value of its assets hits a certain barrier. In 2001 Zhou showed how the model can be extended to two obligors whose assets are correlated. In this paper we show how the model can be extended to a large number of...
Persistent link: https://www.econbiz.de/10012736676
This paper provides a methodology for valuing credit default swaps when the payoff is contingent on default by a single reference entity and there is no counterparty defaultrisk. The paper tests the sensitivity of credit default swap valuations to assumptions about the expected recovery rate. It...
Persistent link: https://www.econbiz.de/10012768957
Persistent link: https://www.econbiz.de/10011200743
Difficult seasonal conditions during the last six years have placed many farms under significant financial pressure. Producers have been looking for enterprise changes which will quickly improve their profits. New breeds have increased the options available, but there is rarely any local...
Persistent link: https://www.econbiz.de/10009653496
In this thesis, I study three aspects of idiosyncratic volatility. First, I examine the relation between idiosyncratic volatility and future stock returns. Next, I examine the share price effect and its interaction with the idiosyncratic volatility on stock returns. Finally, I examine the time...
Persistent link: https://www.econbiz.de/10009455246
In this thesis, I imply a forward-looking systematic factor from CDO market spreads; I show that this factor is a measure of CDO market's expectation of future default correlation, and I empirically show that it is positively related to bond credit spreads. From this, I infer that corporate bond...
Persistent link: https://www.econbiz.de/10009455367