Similar Search Results

Bank Stability and Market Discipline: Debt-for-Equity Swap versus Subordinated Notes

Raviv, Alon - EconWPA - 2004

Several studies have recommended reliance on subordinated debt as a tool for monitoring banks by investors and for enhancing depositors’ protection. However, subordinated debenture increases the level of leverage and thus the probability of costly failure. We propose a novel financial...

Persistent link: https://www.econbiz.de/10005413031

An Empirical Comparison of Default Swap Pricing Models

Houweling, Patrick; Vorst, Ton - EconWPA - 2001

In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works well for...

Persistent link: https://www.econbiz.de/10005413092

Do Brokers Misallocate Customer Trades? Evidence From Futures Markets

Park, Hun Y.; Sarkar, Asani; Wu, Lifan - EconWPA - 1998

In the context of futures markets, we study whether brokers allocate more favorable trades to their own accounts, and less favorable trades to their customers. We find that, within a thirty minute trading bracket, brokers on average buy at a lower price and sell at a higher price for their own...

Persistent link: https://www.econbiz.de/10005413100

The Random Yield Curve and Interest Rate Options

Chu, Meifang - EconWPA - 1997

This paper proposes a simple and unifying model to price the interest rate contingent claims in a complete market where trading can be made in continuous time. The underlying dynamics of the yield curve is modelled by a random string whose trajectory produces a random surface described by a...

Persistent link: https://www.econbiz.de/10005413112

Taking Positive Interest Rates Seriously

Pan, Enlin; Wu, Liuren - EconWPA - 2004

We present a dynamic term structure model in which interest rates of all maturities are bounded from below at zero. Positivity and continuity, combined with no arbitrage, result in only one functional form for the term structure with three sources of risk. One dynamic factor controls the level...

Persistent link: https://www.econbiz.de/10005413120

When to Put All Your Eggs in One Basket.....When Diversification Increases Portfolio Risk!

Los, Cornelis A. - EconWPA - 2004

Portfolio diversification may not always lower the portfolio risk, but may actually increase it. It depends on the long memory and distributional stability characteristics of the underlying rates of return. This disturbing result is based on the theoretical Fama- Samuelson proposition of...

Persistent link: https://www.econbiz.de/10005413142

Variance Risk Premia

Carr, Peter; Wu, Liuren - EconWPA - 2004

We propose a direct and robust method for quantifying the variance risk premium on financial assets. We theoretically and numerically show that the risk-neutral expected value of the return variance, also known as the variance swap rate, is well approximated by the value of a particular...

Persistent link: https://www.econbiz.de/10005413197

Estimating the Volatility Structure of an Arbitrage-Free Interest Rate Model Via the Futures Markets

Bhar, Ram; Chiarella, Carl; To, Thuy-Duong - EconWPA - 2004

unobserved instantaneous forward rate is analyzed. The fact that futures contracts can be viewed as derivative instruments on the …

Persistent link: https://www.econbiz.de/10005413218

Static Hedging of Standard Options

Carr, Peter; Wu, Liuren - EconWPA - 2004

We consider the hedging of options when the price of the underlying asset is always exposed to the possibility of jumps … finite set of shorter-term options and use Monte Carlo simulation to determine the hedging error thereby introduced. We … compare this hedging error to that of a delta hedging strategy based on daily rebalancing in the underlying futures. The …

Persistent link: https://www.econbiz.de/10005413226

Design and Estimation of Quadratic Term Structure Models

Leippold, Markus; Wu, Liuren - EconWPA - 2002

We consider the design and estimation of quadratic term structure models. We start with a list of stylized facts on interest rates and interest rate derivatives, classified into three layers: (1) general statistical properties, (2) forecasting relations, and (3) conditional dynamics. We then...

Persistent link: https://www.econbiz.de/10005413240