EconPapers    
Economics at your fingertips  
 

Debt Collateralization, Structured Finance, and the CDS Basis

Feixue Gong and Gregory Phelan ()
Additional contact information
Feixue Gong: Massachusetts Institute of Technology

No 2019-18, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: Tranching an asset increases its basis; tranching a CDS, as occurs with the CDX index, increases the CDS basis on the underlying asset. We study how the ability to use financial contracts as collateral affects the CDS basis using a general equilibrium model with collateralized financial promises and multiple states of uncertainty. A positive basis emerges when risky assets and their derivative debt contracts can be used as collateral for financial promises. We provide an empirical test of our theory using inclusion in the CDX and find that inclusion in the CDX increases the CDS basis.

Keywords: Collateral; securitized markets; cash-synthetic basis; credit default swaps; asset prices; credit spreads. (search for similar items in EconPapers)
JEL-codes: D52 D53 G11 G12 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2019-09
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-fmk
Note: This is an update of WP 2016-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://web.williams.edu/Economics/wp/GongPhelanDe ... dFinanceCDSBasis.pdf Full text (application/pdf)

Related works:
Working Paper: Debt Collateralization, Structured Finance, and the CDS Basis (2017) 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:wil:wileco:2019-18

Ordering information: This working paper can be ordered from

The price is Free.

Access Statistics for this paper

More papers in Department of Economics Working Papers from Department of Economics, Williams College Williamstown, MA 01267. Contact information at EDIRC.
Bibliographic data for series maintained by Stephen Sheppard ().

 
Page updated 2023-02-07
Handle: RePEc:wil:wileco:2019-18