I show that an important no-arbitrage consistent but costly collateral rental yield contributes to about two-thirds of the standard CIP violations. I measure this yield using two approaches applied to short- and long-term CIP horizons. First, I assume that the yield is observable and proxy it...

There is nothing like a market crash to focus the mind on the importance of risk management and, more specifically, tail risk management. Because tail events are generally systemic in nature and are characterised by elevated correlations and liquidity squeezes, effective tail risk management is...

We study the risk of holding credit default swaps (CDS) in the trading book. In particular, wecompare the Value at Risk (VaR) of a CDS position to the VaR for investing in the respectivefirm’s equity. Our sample consists of CDS – stock price pairs for 86 actively traded firms overthe period...

This is study empirically examine the impact of market conditions on credit spreads asmotivated by recently developed structural credit risk models. Using credit default swap(CDS) spreads, we find that, in the time series, average credit spreads are decreasing inGDP growth rate, but increasing...

This paper investigates the market pricing of subprime mortgage risk on the basis of data forthe ABX.HE family of indices, which have become a key barometer of mortgage marketconditions during the recent financial crisis. After an introduction into ABX index mechanicsand a discussion of...

We revisit the problem of pricing and hedging plain vanilla single-currency interest rate derivatives using multiple distinct yield curves for market coherent estimation of discount factors and forward rates with dierent underlying rate tenors. Within such double-curve-single-currency framework,...

Once upon a time there was a classical financial world in which all the Libors were equal. Standard textbooks taught that simple relations held, such that, for example, a 6 months Libor Deposit was replicable with a 3 months Libor Deposits plus a 3x6 months Forward Rate Agreement (FRA), and that...

We present a quantitative study of the markets and models evolution across the credit crunch crisis. In particular, we focus on the fixed income market and we analyze the most relevant empirical evidences regarding the divergences between Libor and OIS rates, the explosion of Basis Swaps...

We review the main changes in the interbank market after the financial crisis started in August 2007. In particular, we focus on the fixed income market and we analyse the most relevant empirical evidences regarding the divergence of the existing basis between interbank rates with different...

This paper uses regression analysis to compare the market pricing of the default risk of banks to that of other firms. We study how CDS traders discriminate between banks and other type of firms and how their judgement changes over time, in particular, since the start of the recent financial...