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An Explanation of Negative Swap Spreads : Demand for Duration from Underfunded Pension Plans
Klingler, Sven - 2018
The 30-year U.S. swap spreads have been negative since September 2008. We offer a novel explanation for this persistent anomaly. Through an illustrative model, we show that underfunded pension plans optimally use swaps for duration hedging. Combined with dealer banks' balance sheet constraints,...
Persistent link: https://www.econbiz.de/10012927397
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An Intermediation-Based Model of Exchange Rates
Malamud, Semyon - 2018
We develop a general equilibrium model with intermediaries at the heart of international financial markets. In our model, intermediaries bargain with their customers and extract rents for providing access to foreign claims. The behavior of intermediaries, by tilting state prices, generates an...
Persistent link: https://www.econbiz.de/10012908612
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Explaining the Level of Credit Spreads : Option-Implied Jump Risk Premia in a Firm Value Model
Cremers, Martijn - 2007
Prices of equity index put options contain information on the price of systematic downward jump risk. We use a structural jump-diffusion firm value model to assess the level of credit spreads that is generated by option-implied jump risk premia. In our compound option pricing model, an equity...
Persistent link: https://www.econbiz.de/10012732151
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Does Variance Risk Have Two Prices? Evidence from the Equity and Option Markets
Barras, Laurent - 2015
We formally compare two versions of the market Variance Risk Premium (VRP) measured in the equity and option markets. Both VRPs follow common patterns and respond similarly to changes in volatility and economic conditions. However, we reject the null hypothesis that they are identical and find...
Persistent link: https://www.econbiz.de/10013013799
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Dislocations in the Won-Dollar Swap Markets During the Crisis of 2007-09
Shim, Ilhyock - 2020
Foreign exchange (FX) derivatives markets in the Korean won are comparatively thin and vulnerable to impaired functioning. During the crisis, Korea faced dislocations in its FX swap and cross-currency swap markets, so severe that covered interest parity (CIP) between the Korean won and the US...
Persistent link: https://www.econbiz.de/10012857428
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The Pricing of Unexpected Credit Losses
Amato, Jeffery D. - 2013
unexpected losses due to single-name defaults in necessarily small credit portfolios, accounts for the major part of spreads …. Because return distributions are highly skewed, diversification would require very large portfolios. Evidence from arbitrage … summary measure of risk in feasible credit portfolios. We find evidence of a positive linear relationship between this risk …
Persistent link: https://www.econbiz.de/10012711868
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Macro Factors in the Term Structure of Credit Spreads
Amato, Jeffery D. - 2013
We estimate arbitrage-free term structure models of US Treasury yields and spreads on BBB and Brated corporate bonds in a doubly-stochastic intensity-based framework. A novel feature of our analysis is the inclusion of macroeconomic variables - indicators of real activity, inflation and...
Persistent link: https://www.econbiz.de/10012712009
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Spanned Stochastic Volatility in Bond Markets : A Reexamination of the Relative Pricing between Bonds and Bond Options
Kim, Don H. - 2014
This paper reexamines the issue of unspanned stochastic volatility (USV) in bond markets and the puzzle of poor relative pricing between bonds and bond options. I make a distinction between the "weak USV" and the "strong USV" scenarios, and analyze the evidence for each of them. I argue that the...
Persistent link: https://www.econbiz.de/10014218891
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Price discovery from cross-currency and FX swaps: a structural analysis
Baba, Naohiko; Amatatsu, Yasuaki - Bank für Internationalen Zahlungsausgleich <Basel> - 2008
This paper investigates the relative role of price discovery between two long-term swap contracts that exchange U.S. dollars for Japanese yen - the cross-currency basis swap and the foreign exchange (FX) swap - using structural state space models. Our main findings are that: (i) the currency...
Persistent link: https://www.econbiz.de/10009248829
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A Comprehensive Look at Financial Volatility Prediction by Economic Variables
Christiansen, Charlotte - 2014
We investigate if asset return volatility is predictable by macroeconomic and financial variables and shed light on the economic drivers of financial volatility. Our approach is distinct due to its comprehensiveness: First, we employ a data-rich forecast methodology to handle a large set of...
Persistent link: https://www.econbiz.de/10013066491