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The value of the liability insurance for Credit Suisse and UBS

Listed author(s):
  • Mario HAEFELI

    (University of Zurich and Swiss Finance Institute)

  • Matthias P. JUTTNER

    (University of Zurich and Swiss Finance Institute)

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    Using an options-based approach, we compute the value of the state guarantee for the liability side of Credit Suisse and UBS. The insurance premiums for these two system-relevant banks are calculated in a dynamic setup from 2004 until 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 increased number of audits reduce the value of the guarantee substantially. The model implied CDS spreads are compared to the ones perceived by the market.

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    Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 10-32.

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    Length: 32 pages
    Date of creation: Jul 2010
    Date of revision: Nov 2010
    Handle: RePEc:chf:rpseri:rp1032
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