EconPapers    
Economics at your fingertips  
 

Credit Derivatives in Banking: Useful Tools for Managing Risk?

Gregory R. Duffee and Chunsheng Zhou.
Authors registered in the RePEc Author Service: Greg Duffee and Chunsheng Zhou

No RPF-289, Research Program in Finance Working Papers from University of California at Berkeley

Abstract: We model the effects on banks of the introduction of a market for credit derivatives; in particular, credit-default swaps. A bank can use such swaps to temporarily transfer credit risks of their loans to others, reducing the likelihood that defaulting loans trigger the bank's financial distress. Because credit derivatives are more flexible at transferring risks than are other, more established tools such as loan sales without recourse, these instruments make it easier for banks to circumvent the "lemons" problem caused by banks' superior information about the credit quality of their loans. However, we find that the introduction of a credit-derivatives market is not necessarily desirable because it can cause other markets for loan risk-sharing to break down.

Date: 1999-11-01
New Economics Papers: this item is included in nep-cfn and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://haas.berkeley.edu/finance/WP/rpf289.pdf main text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Journal Article: Credit derivatives in banking: Useful tools for managing risk? (2001) Downloads
Working Paper: Credit Derivatives in Banking: Useful Tools for Managing Risk? (1999) Downloads
Working Paper: Credit derivatives in banking: useful tools for managing risk? (1997) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucb:calbrf:rpf-289

Ordering information: This working paper can be ordered from
IBER, F502 Haas Building, University of California at Berkeley, Berkeley CA 94720-1922

Access Statistics for this paper

More papers in Research Program in Finance Working Papers from University of California at Berkeley University of California at Berkeley, Berkeley, CA USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().

 
Page updated 2020-07-30
Handle: RePEc:ucb:calbrf:rpf-289