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The Value of the Liability Insurance for Credit Suisse and UBS

  • Mario Häfeli
  • Matthias P. Jüttner
Registered author(s):

    Using an options-based approach, we compute the value of the state guarantee for the liability side of Credit Suisse and UBS. Insurance premiums for these two systemically important banks are calculated in a dynamic setup from 2004 through 2009 in quarterly steps for time horizons of one and five years. The model captures the characteristics of the current financial crisis and detects the bailout of UBS. Strengthened capital requirements and an increased number of audits reduce the value of the guarantee substantially.

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    File URL: http://www.ingentaconnect.com/content/mohr/jite/2012/00000168/00000004/art00004
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    Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

    Volume (Year): 168 (2012)
    Issue (Month): 4 (December)
    Pages: 612-635

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    Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201212)168:4_612:tvotli_2.0.tx_2-e
    Contact details of provider: Web page: https://www.mohr.de/jite

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    1. Wayne Passmore, 2005. "The GSE implicit subsidy and the value of government ambiguity," Finance and Economics Discussion Series 2005-05, Board of Governors of the Federal Reserve System (U.S.).
    2. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
    3. Ronn, Ehud I & Verma, Avinash K, 1986. " Pricing Risk-Adjusted Deposit Insurance: An Option-Based Model," Journal of Finance, American Finance Association, vol. 41(4), pages 871-95, September.
    4. Lucas, Deborah & McDonald, Robert L., 2006. "An options-based approach to evaluating the risk of Fannie Mae and Freddie Mac," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 155-176, January.
    5. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Wayne Passmore, 2005. "The GSE Implicit Subsidy and the Value of Government Ambiguity," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(3), pages 465-486, 09.
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