The Term Structure of Interbank Risk

Damir Filipović, Anders Bjerre Trolle

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Abstrakt

We infer a term structure of interbank risk from spreads between rates on interest rate swaps indexed to the London Interbank Offered Rate (LIBOR) and overnight indexed swaps. We develop a tractable model of interbank risk to decompose the term structure into default and non-default (liquidity) components. From August 2007 to January 2011, the fraction of total interbank risk due to default risk, on average, increases with maturity. At short maturities, the non-default component is important in the first half of the sample period and is correlated with measures of funding and market liquidity. The model also provides a framework for pricing, hedging, and risk management of interest rate swaps in the presence of significant basis risk.
OriginalsprogEngelsk
TidsskriftJournal of Financial Economics
Vol/bind109
Udgave nummer3
Sider (fra-til)707-733
Antal sider25
ISSN0304-405X
DOI
StatusUdgivet - 2013
Udgivet eksterntJa

Emneord

  • Interbank risk
  • LIBOR
  • Interest rate swaps
  • Default risk
  • Liquidity

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