Safe-haven CDS Premia

Sven Klingler, David Lando

Publikation: Bidrag til konferencePaperForskningpeer review

Resumé

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.
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.

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

Citer dette

Klingler, S., & Lando, D. (2016). Safe-haven CDS Premia. Afhandling præsenteret på The 76th Annual Meeting of American Finance Association. AFA 2016, San Francisco, CA, USA.
Klingler, Sven ; Lando, David. / Safe-haven CDS Premia. Afhandling præsenteret på The 76th Annual Meeting of American Finance Association. AFA 2016, San Francisco, CA, USA.47 s.
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abstract = "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.",
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author = "Sven Klingler and David Lando",
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Klingler, S & Lando, D 2016, 'Safe-haven CDS Premia' Paper fremlagt ved The 76th Annual Meeting of American Finance Association. AFA 2016, San Francisco, CA, USA, 03/01/2016 - 05/01/2016, .

Safe-haven CDS Premia. / Klingler, Sven; Lando, David.

2016. Afhandling præsenteret på The 76th Annual Meeting of American Finance Association. AFA 2016, San Francisco, CA, USA.

Publikation: Bidrag til konferencePaperForskningpeer review

TY - CONF

T1 - Safe-haven CDS Premia

AU - Klingler,Sven

AU - Lando,David

PY - 2016

Y1 - 2016

N2 - 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.

AB - 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.

KW - CDS premia

KW - Capital charges

KW - Government bonds

KW - CDS premia

KW - Capital charges

KW - Government bonds

M3 - Paper

ER -

Klingler S, Lando D. Safe-haven CDS Premia. 2016. Afhandling præsenteret på The 76th Annual Meeting of American Finance Association. AFA 2016, San Francisco, CA, USA.