scholarly journals Does the Tail Wag the Dog? The Effect of Credit Default Swaps on Credit Risk

2012 ◽  
Author(s):  
Marti G. Subrahmanyam ◽  
Dragon Yongjun Tang ◽  
Sarah Qian Wang
Keyword(s):  
Credit Risk ◽  
Credit Default Swaps ◽  
Credit Default

Credit Default Swaps and Bank Regulatory Capital*

2020 ◽  
Author(s):  
Chenyu Shan ◽  
Dragon Yongjun Tang ◽  
Hong Yan ◽  
Xing (Alex) Zhou
Keyword(s):  
Credit Risk ◽  
Credit Default Swaps ◽  
Unintended Consequences ◽  
Government Support ◽  
Regulatory Capital ◽  
Credit Default ◽  
Capital Ratios

Abstract While credit default swaps (CDSs) can be used to hedge credit risk exposures or to speculate, we examine another use of them: banks buy CDS referencing their borrowers to obtain regulatory capital relief. Such capital relief activities have unintended consequences, as banks extend riskier loans when they buy CDS to boost capital ratios. While capital-induced CDS-user banks achieve higher profitability during normal times, they perform worse and request more government support in crisis periods than other banks that use CDS for trading or speculation. Our findings suggest that banks’ CDS trading for capital relief purposes may make these banks riskier.

Laying off credit risk: Loan sales versus credit default swaps

2013 ◽  
Vol 107 (1) ◽  
pp. 25-45 ◽  
Author(s):  
Christine A. Parlour ◽  
Andrew Winton
Keyword(s):  
Credit Risk ◽  
Credit Default Swaps ◽  
Loan Sales ◽  
Credit Default

The Rise of Credit Default Swaps and Its Implications on Financial Stability

2018 ◽  
pp. 336-350
Author(s):  
Fatma Sezer Dural
Keyword(s):  
Credit Risk ◽  
Exponential Growth ◽  
Financial Stability ◽  
Credit Default Swap ◽  
Credit Default Swaps ◽  
Financial Instruments ◽  
Credit Crisis ◽  
Credit Default ◽  
Default Swap ◽  
The Stability

The credit default swap market has experienced an exponential growth in recent decades. Though the fırst credit default swap contract was negotiated in the mid-1990s, the market has enjoyed a surge of popularity beginning in 2003. By the end of June 2013, the outstanding amount reached 24.3 trillion dollars. It is mostly used to transfer or to hedge credit risk. Concurrently with the global credit crisis, several shortcomings in CDS markets have appeared. One of the obvious questions is whether they affect the stability of financial markets. In this context after broader exhibition of credit default swaps market, speculative use of CDS, inception of central counterparty, and transparency of CDS market is handled. As a conclusion, it is true that the CDS market still has some weaknesses, but it is no more prone to be destabilizing than other financial instruments. This is shown in this chapter.

scholarly journals Optimizing Price of Credit Default Swaps for Dynamic Project System of Public-Private Partnership

2018 ◽  
Vol 2018 ◽  
pp. 1-10
Author(s):  
Ming Wu ◽  
Wenya Lv ◽  
Qiuji Sun
Keyword(s):  
Credit Risk ◽  
Operations Management ◽  
Risk Mitigation ◽  
Measurement Theory ◽  
Credit Default Swaps ◽  
Public Private Partnership ◽  
Risk Measurement ◽  
Private Partnership ◽  
Credit Default ◽  
Credit Risk Measurement

Most project operations management belongs to the type of public-private partnership (PPP), which is usually dynamic. This paper aims to propose a method for optimizing the price of credit default swaps (CDS) for the dynamic PPP system. This study investigates the credit risk measurement of PPP project financing and the pricing of risk mitigation instruments which are widely used in the case of immature markets in the early stage of China’s PPP development. Based on the credit risk measurement theory of the corporate and debt ratings, this paper considers the differences in various credit enhancement methods in the equity-like debt agreement and determines the credit rating of the equity-like debt in PPP projects. Some optimization methods are also proposed to derive the probability of default, so as to determine the price of the credit risk mitigation instrument of CDS which is based on the equity-like debt.

Exploring the components of credit risk in credit default swaps

2007 ◽  
Vol 4 (1) ◽  
pp. 10-18 ◽  
Author(s):  
Frank J. Fabozzi ◽  
Xiaolin Cheng ◽  
Ren-Raw Chen
Keyword(s):  
Credit Risk ◽  
Credit Default Swaps ◽  
Credit Default

scholarly journals Does the Tail Wag the Dog?: The Effect of Credit Default Swaps on Credit Risk

2014 ◽  
Vol 27 (10) ◽  
pp. 2927-2960 ◽  
Author(s):  
Marti G. Subrahmanyam ◽  
Dragon Yongjun Tang ◽  
Sarah Qian Wang
Keyword(s):  
Credit Risk ◽  
Credit Default Swaps ◽  
Credit Default
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