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Counterparty risk and counterparty choice in the credit default swap market
Du, Wenxin; Gadgil, Salil; Gordy, Michael B.; Vega, Clara - 2016
We investigate how market participants price and manage counterparty risk in the post-crisis period using confidential trade repository data on single-name credit default swap (CDS) transactions. We find that counterparty risk has a modest impact on the pricing of CDS contracts, but a large...
Persistent link: https://www.econbiz.de/10011578787
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Variance disparity and market frictions
Park, Yang-Ho - 2019
This paper introduces a new model-free approach to measuring the expectation of market variance using VIX derivatives. This approach shows that VIX derivatives carry different information about future variance than S&P 500 (SPX) options, especially during the 2008 financial crisis. I find that...
Persistent link: https://www.econbiz.de/10012182042
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Inferring term rates from SOFR futures prices
Heitfeld, Erik; Park, Yang-Ho - 2019
futures began trading. To examine the performance of our approach over a longer time horizon, we compare term rates derived … that currently reference US dollar LIBOR. This paper examines the feasibility of using SOFR futures prices to construct … show that futures-implied term SOFR rates have closely tracked federal funds OIS rates over the eight months since SOFR …
Persistent link: https://www.econbiz.de/10012017545
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The decline in asset return predictability and macroeconomic volatility
Hsu, Alex; Palomino, Francisco; Qian, Charles - 2017
We document strong U.S. stock and bond return predictability from several macroeconomic volatility series before 1982, and a significant decline in this predictability during the Great Moderation. These findings are robust to alternative empirical specifications and out-of-sample tests. We...
Persistent link: https://www.econbiz.de/10011709322
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Investment commonality across insurance companies : fire sale risk and corporate yield spreads
Nanda, Vikram; Wu, Wei; Zhou, Xing - 2017
Insurance companies often follow highly correlated investment strategies. As major investors in corporate bonds, their investment commonalities subject investors to fire-sale risk when regulatory restrictions prompt widespread divestment of a bond following a rating downgrade. Reflective of...
Persistent link: https://www.econbiz.de/10011710064
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Treasury Safety, Liquidity, and Money Premium Dynamics : Evidence from Recent Debt Limit Impasses
Cashin, David B. - 2020
Treasury securities normally possess unparalleled safety and liquidity and, consequently, carry a money premium. We use recent debt limit impasses, which temporarily increased the riskiness of Treasuries, to investigate the relationship between the money premium, safety, and liquidity. Our...
Persistent link: https://www.econbiz.de/10012834175
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Take it to the Limit : The Debt Ceiling and Treasury Yields
Cashin, David B.; Syron Ferris, Erin; Klee, Elizabeth; … - 2017
We use the 2011 and 2013 U.S. debt limit impasses to examine the extent to which investors react to a heightened possibility of financial contagion. To do so, we first model the response of yields on government debt to a potential debt limit \"breach.\" We then demonstrate empirically that...
Persistent link: https://www.econbiz.de/10014121290
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Tractable rare disaster probability and options-pricing
Barro, Robert J.; Liao, Gordon Y. - 2019
We derive an option-pricing formula from recursive preference and estimate rare disaster probability. The new options-pricing formula applies to far-out-of-the money put options on the stock market when disaster risk dominates, the size distribution of disasters follows a power law, and the...
Persistent link: https://www.econbiz.de/10012182396
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Macro risks and the term structure of interest rates
Bekaert, Geert; Engstrom, Eric; Ermolov, Andrey - 2017
We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks, later recessions were driven primarily by demand shocks, and the Great...
Persistent link: https://www.econbiz.de/10011709342
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QE Auctions of Treasury Bonds
Song, Zhaogang - 2014
st rong heterogeneity in their participation, trading volumes, and profits in QE auctions; (5) Auction bidding variables …
Persistent link: https://www.econbiz.de/10013050098