Default Ambiguity: Credit Default Swaps Create New Systemic Risks in Financial Networks
نویسندگان
چکیده
منابع مشابه
Default Ambiguity: Credit Default Swaps Create New Systemic Risks in Financial Networks∗
We study financial networks and reveal a new kind of systemic risk arising from what we call default ambiguity, i.e., a situation where it is impossible to decide which banks are in default. Specifically, we study the clearing problem: given a network of banks interconnected by financial contracts, determine which banks are in default and what percentage of their liabilities they can pay. Prior...
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We study insolvency cascades in an interbank system when banks are allowed to insure their loans with credit default swaps (CDS) sold by other banks. We show that, by properly shifting financial exposures from one institution to another, a CDS market can be designed to rewire the network of interbank exposures in a way that makes it more resilient to insolvency cascades. A regulator can use inf...
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Credit Default Swaps (CDS) spreads should reflect default risk of the underlying corporate debt. Actually, it has been recognized that CDS spread time series did not anticipate but only followed the increasing risk of default before the financial crisis. In principle, the network of correlations among CDS spread time series could at least display some form of structural change to be used as an ...
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The specification of a realistic dependence structure is key to the pricing of multi-name credit derivatives. We value small k th-to-default CDS baskets in the presence of asset correlation and default contagion. Using a first-passage framework, firm values are modeled as correlated geometric Brownian motions with exponential default thresholds. Idiosyncratic links between companies are incorpo...
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In this paper, we develop a generalized affine model to characterize correlated credit risk of multi-firms. When valuing credit derivatives, this new approach allows to incorporate correlative market and credit risk, interdependent default risk structure and counterparty risk into consideration. We have demonstrated our affine model not only combines the existing structural models and intensity...
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ژورنال
عنوان ژورنال: Management Science
سال: 2020
ISSN: 0025-1909,1526-5501
DOI: 10.1287/mnsc.2019.3304