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Safe-haven CDS Premia

Publikation: Forskning - peer reviewPaper

We argue that Credit Default Swap (CDS) premia for safe-haven sovereigns, like Germany and the United States, are driven to a large extent by regulatory requirements under which derivatives dealing banks have an incentive to buy CDS to hedge counterparty credit risk of their counterparties. We explain the mechanics of the regulatory requirements and develop a model in which derivatives dealers, who have a derivatives exposure with sovereigns, need CDS for capital relief. End users without exposure to the sovereigns sell the CDS and require a positive premium equivalent to the capital requirement. The model's predictions are confirmed using data on several sovereigns.

Publikationsoplysninger

OriginalsprogEngelsk
Publikationsdato2016
Antal sider47
StatusUdgivet - 2016
BegivenhedThe 76th Annual Meeting of American Finance Association. AFA 2016 - San Francisco, CA, USA

Konference

KonferenceThe 76th Annual Meeting of American Finance Association. AFA 2016
Nummer76
LandUSA
BySan Francisco, CA
Periode03/01/201605/01/2016
Internetadresse

    Emneord

  • CDS premia, Capital charges, Government bonds

ID: 45432269