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Journal Article
CDS Auctions: An Overview
We discuss the historical background of the credit default swap (CDS) market, why CDS auctions were developed, and the most recent literature. We describe the auction rules using the Toys R Us auction as an example. Furthermore, we discuss the theoretical and empirical results presented in Chernov et al. (2013). Empirically, we extend their data to include more recent CDS auctions. Our results support their findings that dealers have incentive to manipulate the auction price downward when the net open interest is positive. Finally, we use novel dealer-level CDS positions to support Chernov et ...
Journal Article
Sovereign CDS Market: The Role of Dealers in Credit Events
In this paper, we study the credit default swaps (CDS) position of the main dealers in the CDS market close to credit events of sovereign countries. We focus on the credit events of three countries that have faced significant financial distress in the past decade: Argentina, Venezuela, and Ukraine. After introducing the historical background of each country, we find that CDS dealers, defined as the top ten traders of CDS in their respective countries, tend to sell sovereign CDS (hold more negative or less positive positions) when yields/CDS spreads go up. This finding suggests that dealers ...
Working Paper
Sovereign Debt and Credit Default Swaps
ow do credit default swaps (CDS) affect sovereign debt markets? The answer depends crucially on trading frictions, risk-sharing, arbitrage violations, and spillovers from secondary to primary markets. We propose a sovereign default model where investors trade bonds and CDS over the counter via directed search. CDS affect bond prices through several channels. First, CDS act as a synthetic bond. Second, CDS reduce bond-investing risks, allowing exposure to be unwound. Third, CDS availability increases trading profitability, which induces entry and reduces trading costs. Last, these direct ...
Journal Article
Recent Borrowing from the U.S. Discount Window: Some Cases
The Fed's discount window makes loans to depository institutions on a regular basis. Recent publicly available transaction-level data permit a closer look at the particular circumstances under which some of those loans happened. The analysis of nine specific cases produces some general insights that can be useful in evaluating whether the discount window should be open to making loans during periods of relatively calm financial conditions.