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Managing Credit Risk With Credit And Macro Derivatives

Author

Listed:
  • 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.

Suggested Citation

  • Udo Broll & Gerhard Schweimayer & Peter Welzel, 2004. "Managing Credit Risk With Credit And Macro Derivatives," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 56(4), pages 360-378, October.
  • Handle: RePEc:sbr:abstra:v:56:y:2004:i:4:360-378
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    Cited by:

    1. Gilroy, Bernard Michael & Broll, Udo, 2005. "Managing Credit Risk with Credit Derivatives," MPRA Paper 17678, University Library of Munich, Germany.
    2. Saibal Ghosh, 2015. "Macroprudential regulation and bank behaviour: theory and evidence from a quasi-natural experiment," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 8(1-2), pages 138-159, July.
    3. 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.

    More about this item

    Keywords

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

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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