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Managing Credit Risk With Credit And Macro Derivatives

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Author Info

  • Udo Broll
  • Gerhard Schweimayer
  • Peter Welzel

Abstract

We use the industrial organization approach to the microeconomic s of banking, augment Ed by uncertainty and risk aversion, to ex a mine c r edit derivatives and macro derivatives as instruments t o hedge c r edit 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 o t her . We also suggest how bank-specific macro derivatives could be designed from common macro index as which serve as underlings of recently introduced financial products.

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Bibliographic Info

Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

Volume (Year): 56 (2004)
Issue (Month): 4 (October)
Pages: 360-378

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Handle: RePEc:sbr:abstra:v:56:y:2004:i:4:360-378

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Related research

Keywords: Banking; Credit Derivative; Credit Risk; Macro Derivative; Systematic Risk.;

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Cited by:
  1. Thilo Pausch & Gerhard Schweimayer, 2004. "Hedging with Credit Derivatives and its Strategic Role in Banking Competition," Discussion Paper Series 260, Universitaet Augsburg, Institute for Economics.

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