Managing Credit Risk with Credit and Macro Derivatives

Udo Broll, Gerhard Schweimayer () and Peter Welzel ()
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Gerhard Schweimayer: University of Augsburg, Department of Economics, https://vwl.wiwi.uni-augsburg.de/

No 252, Discussion Paper Series from Universitaet Augsburg, Institute for Economics

Abstract: The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large commercial bank. In a partial-analytic framework we distinguish between the probability of default and the loss given default, model different forms of derivatives, and derive hedge rules and strong and weak separation properties between deposit and loan decisions on the one hand and hedging decisions on the other. We also suggest how bank-specific macro derivatives could be designed from common macro indices which serve as underlyings of recently introduced financial products.

Keywords: banking; credit risk; systematic risk; credit derivative; macro derivative (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2003-11
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://opus.bibliothek.uni-augsburg.de/opus4/files/71205/252.pdf (application/pdf)

Related works:
Journal Article: Managing Credit Risk With Credit And Macro Derivatives (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:aug:augsbe:0252

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