Many observers have argued that credit default swaps contributed significantly to the credit crisis. Of particular concern to these observers are that credit default swaps trade in the largely unregulated over-the-counter market as bilateral contracts involving counter-party risk and that they...

We perform a comprehensive analysis of the US banking system during 2007-2013 period by incorporating specific hedging and trading variables, as well as performance measures. We discover that even though hedging might reduce profitability and firm value, it might also minimize tail risks by a...