This note analyses derivative pricing in the context of a collateral rate switch during the life of a financial product or the existence of two overnight rates. In particular we analyse the impact of forward change of collateral, the impact on OISs when the collateral rate is different from the...

We show that insurance companies have almost nonupled their investments in collateralized loan obligations (CLOs) in the post-crisis period, reaching total holdings of $125 billion in 2019. The growth in CLOs’ investments has far outpaced that of loans and corporate bonds, and was...

Since 2018, banks have implemented the expected credit loss (ECL) model under International Financial Reporting Standard (IFRS) 9 to estimate loan losses, which replaces the incurred loss model under International Accounting Standard (IAS) 39. The key novelty of the ECL model is the...

We provide evidence in favour of a significant non-linear, time-varying dependence between sovereign credit default swap (CDS) spreads and macroeconomic fundamentals for OECD countries. Macroeconomic conditions alone explain more than 80% of the out-of-sample variation in CDS spreads when...

Based on archival and survey data we show that the maturity of U.S. business loans has been continuously increasing since the mid-1930s when banks invented the term loan. Concurrently, bank innovation first involved the invention of credit analysis and covenant design. Later, bank innovation...

This study investigates whether and how insider trading in the credit default swap (CDS) market is influenced by the corporate board network, formed by interlocking boards. We find strong evidence that firms with a more centralized position in the board network experience a higher degree of...

We develop an analytically tractable general equilibrium model to analyze the welfare effects of CDS trading and CDS regulation under aggregate uncertainty. If available equity capital is below a threshold, any equilibrium of the basic economy with no CDS markets features firm default and...

In reduced-form pricing models, it is usual to assume a fixed recovery rate to obtain the probability of default from credit default swap prices. An alternative credit risk measure is proposed here: the maximum recovery rate compatible with observed prices. The analysis of the recent debt crisis...

We study the initiation effect of credit default swaps on CEOs performance-sensitive compensation and shareholder value. We find that the initiation effect of CDS contracts on CEO’s delta varies by the characteristics of firms. Firms with higher R&D and intangibles reduce CEO’s delta whereas...

There have been 128 defaults among U.S. CDS reference entities between 2001 and 2020. Within this sample, the five-year CDS spread is a significant predictor of corporate default in models with equity market covariates and firm attributes. This finding holds for forecast horizons up to 12...