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The pitfalls of central clearing in the presence of systematic risk
Kubitza, Christian; Pelizzon, Loriana; Getmansky, Mila - 2018
reluctance to clear derivative trades in the absence of a central clearing obligation. We develop a comprehensive understanding … moving from a bilateral to a clearing architecture for derivative markets. Previous studies suggest that central clearing is … its counterparties: 1) correlation across and within derivative classes (i.e., systematic risk), 2) collateralization of …
Persistent link: https://www.econbiz.de/10011923506
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Market Risk When Hedging a Global Credit Portfolio
Chamizo, Alvaro - 2019
We examine the efficiency of hedging a credit derivative portfolio with a contrary position in a credit index in the …
Persistent link: https://www.econbiz.de/10012894134
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Linear credit risk models
Ackerer, Damien; Filipović, Damir - 2016
We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors. The price of a CDS option can be uniformly approximated by...
Persistent link: https://www.econbiz.de/10011516035
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Hedging interest rate risk using a structural model of credit risk
Huang, Jing-Zhi; Shi, Zhan - 2016
This paper investigates predictions of structural credit risk models for interest rate sensitivities of corporate bond returns. Recent evidence has shown that the existing models fail to capture this sensitivity (a stylized fact referred to as the interest rate sensitivity puzzle). We propose...
Persistent link: https://www.econbiz.de/10011810957
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The Life of the Counterparty : Shock Propagation in Hedge Fund-Prime Broker Credit Networks
Kruttli, Mathias S. - 2020
The collapse of Lehman Brothers illustrated the importance of managing prime broker counterparty risks for hedge funds. Liquidity shocks to prime brokers can lead to cycles of deleveraging that produce losses at funds and potentially have harmful effects on financial market function and credit...
Persistent link: https://www.econbiz.de/10012852681
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The Life of the Counterparty : Shock Propagation in Hedge Fund-Prime Broker Credit Networks
Kruttli, Mathias S. - 2019
The collapse of Lehman Brothers illustrated the importance of managing prime broker counterparty risks for hedge funds. Liquidity shocks to prime brokers can lead to cycles of deleveraging that produce losses at funds and potentially have harmful effects on financial market function and credit...
Persistent link: https://www.econbiz.de/10012860614
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Two New Equity Default Swaps with Idiosyncratic Risk
Yang, Zhaojun - 2014
We investigate two new types of equity default swaps: an equity-for-guarantee swap (EGS) and an option-for-guarantee swap (OGS). We calculate equilibrium prices for all components of the two swaps. Then we switch to utility-based prices of the entrepreneur's claims. Our analysis shows that under...
Persistent link: https://www.econbiz.de/10013063327
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Basis Risk in Hedging a CDS Portfolio with Credit Indices
Chamizo, Alvaro - 2017
The financial crisis has raised concerns throughout the industry on the possibility that hedging credit valuation adjustment (CVA) might become increasingly difficult should the long-standing correlation between singlename and index CDS products break down. So, we provide an estimation of the...
Persistent link: https://www.econbiz.de/10012970402
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Systematic Risk of Cdos and Cdo Arbitrage
Hamerle, Alfred - 2016
Persistent link: https://www.econbiz.de/10012989251
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Endogenous Recovery and Replication of A Segregated Derivatives Economy with Counterparty Credit, Collateral, and Market Funding
Lou, Wujiang - 2016
We cast the ongoing debate on FVA onto a segregated derivative economy, where counterparties are defaultable and unable …
Persistent link: https://www.econbiz.de/10013007738