We study how risk management through hedging impacts firms and competition among firms in the life insurance industry - an industry with over 7 Trillion in assets and over 1,000 private and public firms. We show that firms that are likely to face costly external finance increase hedging after...

We consider a situation in which general financial products such as options, CDS, and other derivatives, are traded to investigate the effect of cross-ownerships on market stability. We prove the existence and uniqueness of a clearing payment vector under the assumption of the fictitious default...

In this article we expand the semi-replication framework by Burgard and Kjaer to derivative books with multiple counterparties. We then find the funding strategy that corresponds to the recent funding value adjustment accounting proposal by Albanese and Andersen. This strategy is asymmetric and...

I propose a new procedure for extracting probabilities of default from structural credit risk models based on model implied credit spreads (MICS) and implement this approach assuming a barrier option framework nesting the Merton (1974) model of capital structure. MICS are the increase in the...

Rehypothecation is the practice where a derivatives dealer reuses collateral posted from its end user in over-the-counter (OTC) derivatives markets. Although rehypothecation benefits the end user through cost reduction of derivative trades, it also creates additional counterparty credit risk...

This study estimates the parameters of credit derivatives, equity derivatives and structural models for bank recapitalisation in Nigeria by employing contingent convertibles (CoCos) and using the Nigeria Treasury Bill rate for 2009 as the risk-free rate, estimated recapitalisation requirements...

I study dynamic hedging for variable annuities under basis risk. Basis risk, which arises from the imperfect correlation between the underlying fund and the proxy asset used for hedging, has a highly negative impact on the hedging performance. I investigate whether the choice of a suitable...

This paper reviews recent research at the intersection of industrial organization and corporate finance on credit default swap (CDS) markets. These markets have been at the center of the financial crisis of 2007-09 and many aspects of their operation are not well understood. The paper covers...

We formulate a Cournot-type market equilibrium model of simultaneous trading in the CDS and Loan CDS (LCDS) markets. We use novel formulations of two-market demand functions that include trading costs and margins. The equilibrium identifies a relation between premiums, elasticities and recovery...

When a firm writes incomplete debt contracts, its limited ability to commit to not strategically default and renegotiate its debt requires the firm to pay higher yields to its creditors. Hedged by credit derivatives, creditors have stronger bargaining power in the case of debt renegotiation,...