Derivatives market central counterparties play an important role in exchange traded and some OTC derivatives markets. They exist side by side with bilaterally-cleared derivatives. These two clearing structures share common conceptual elements—netting, credit risk mitigation—though they...

With the introduction of Basel II in 2004, “market discipline” became one of the Basel Committee's three pillars of prudential regulation. Although many academic papers have sought to test for the presence of effective market discipline in banking, few have dealt fully with the question....

Derivatives and certain other off-balance sheet contracts enjoy special legal protection on insolvent counterparties through a process referred to as close-out netting. This paper explores the legal status and economic implications of this protection. While this protection benefits major...

In the U.S., the insolvency resolution of most corporations is governed by the federal bankruptcy code and is administered by special bankruptcy courts. Most large corporate bankruptcies are resolved under Chapter 11 reorganization proceedings. However, commercial bank insolvencies are governed...

This paper tests and compares five distinct methods for estimating the term structure. The Unsmoothed Fama-Bliss method is an iterative method by which the discount rate function is built up by computing the forward rate necessary to price successively longer maturity bonds. The Smoothed...

This paper presents a careful reexamination of Chan, Karolyi, Longstaff, and Sanders (CKLS 1992). By redefining the possible regime shift period in line with evidence from known policy changes and past empirical research, we find evidence that contradicts the major results in their paper. The...

Using implied volatility analysis, this article addresses two important issues concerning callable bonds: negative option value anomalies and the optimal call decision rule. In examining apparent negative option values embedded in callable U.S. Treasury bonds, we significantly extend the sample...

The prices for callable U.S. treasury securities provide the sole source of evidence concerning the implied volatility of interest rates over the extended 1926-1994 period. This paper uses the prices of callable as well as non-callable Treasury instruments to estimate implied interest rate...