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Credit Risk

In: Banking and Financial Markets

Author

Listed:
  • Andrada Bilan

    (University of Zurich)

  • Hans Degryse

    (Katholieke University of Leuven)

  • Kuchulain O’Flynn

    (University of Zurich)

  • Steven Ongena

    (University of Zurich)

Abstract

These days banks can trade away credit risk (i.e., the risk that the loan amount will not be returned due to borrower financial distress), by using the credit default swaps (CDS) market. In this chapter, we begin by describing credit default swaps and key events in the CDS market. We then study how modern finance has affected banks credit rate risk management through the use of credit default swaps (CDS). Next we discuss the literature that seeks to uncover the externalities of the decision to hedge credit risk using CDS. In particular, we focus on how this affects other credit markets and the CDS references firms, how these referenced firms respond to having CDS traded on their debt, and, finally, how CDS trading affects non-reference firms.

Suggested Citation

  • Andrada Bilan & Hans Degryse & Kuchulain O’Flynn & Steven Ongena, 2019. "Credit Risk," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Banking and Financial Markets, chapter 0, pages 61-104, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-030-26844-2_4
    DOI: 10.1007/978-3-030-26844-2_4
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