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  • April 2024
  • Article

Demand-and-Supply Imbalance Risk and Long-Term Swap Spreads

By: Samuel G. Hanson, Aytek Malkhozov and Gyuri Venter
We develop and test a model in which swap spreads are determined by end users' demand for and constrained intermediaries’ supply of long-term interest rate swaps. Swap spreads reflect compensation both for using scarce intermediary capital and for bearing convergence... View Details
Keywords: Swap Spreads; Credit Derivatives and Swaps; Interest Rates; Risk and Uncertainty; Volatility
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  • January 2011 (Revised June 2011)
  • Supplement

Fixed Income Arbitrage in a Financial Crisis (C): TED Spread and Swap Spread in November 2008

Investment manager Albert Mills confronts an apparent arbitrage opportunity during the global financial crisis of 2008 when he notices an unusually low-- and briefly negative-- thirty-year U.S. dollar fixed-floating swap spread. Mills must decide if there is an... View Details
Keywords: Bonds; Financial Management; Investment Return; Financial Crisis; Financial Services Industry; United States
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  • January 2011
  • Supplement

Fixed Income Arbitrage in a Financial Crisis (D): TED Spread and Swap Spread in May 2009

The D case briefly recounts the action that investment manager Albert Mills takes in the matter of an unusually low U.S. dollar fixed-floating swap spread. He must decide what to do next. View Details
Keywords: Credit Derivatives and Swaps; Interest Rates; Financial Crisis
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  • October 2019
  • Article

Limited Investment Capital and Credit Spreads

By: Emil N. Siriwardane
Using proprietary credit default swap (CDS) data, I investigate how capital shocks at protection sellers impact pricing in the CDS market. Seller capital shocks—measured as CDS portfolio margin payments—account for 12% of the time-series variation in weekly spread... View Details
Keywords: Credit Risk; Derivatives; Credit Derivatives and Swaps; Capital Markets; Credit; Financial Institutions
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  • February 2023
  • Article

OTC Intermediaries

By: Andrea L. Eisfeldt, Bernard Herskovic, Sriram Rajan and Emil Siriwardane
We study the effect of dealer exit on prices and quantities in a model of an over-the-counter (OTC) market featuring a core-periphery network with bilateral trading costs. The model is calibrated using regulatory data on the entire U.S. credit default swap (CDS) market... View Details
Keywords: OTC Markets; Intermediaries; Dealers; Credit Default Swaps; Risk Sharing; Financial Markets; Networks; Price; Risk and Uncertainty
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  • 10 Jan 2005
  • Research & Ideas

The Knowledge Coach

"Deep smarts," as Harvard Business School professor emerita Dorothy Leonard and collaborator Walter Swap see the term, is the intuition, judgement, and knowledge, both explicit and tacit, that is stored in the heads and hands of... View Details
Keywords: by Dorothy Leonard & Walter Swap
  • December 2023
  • Article

Intermediary Balance Sheets and the Treasury Yield Curve

By: Wenxin Du, Benjamin Hebert and Wenhao Li
We document a regime change in the Treasury market post-Global Financial Crisis (GFC): dealers switched from net short to net long Treasury bonds. We construct “net-long” and “net-short” curves that account for balance sheet and financing costs, and show that actual... View Details
Keywords: Bonds; Financial Markets; Financial Crisis; Asset Pricing
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  • 2023
  • Working Paper

The Market for Sharing Interest Rate Risk: Quantities and Asset Prices

By: Ishita Sen, Umang Khetan, Jane Li and Ioana Neamtu
We study the extent of interest rate risk sharing across the financial system using granular positions and transactions data in interest rate swaps. We show that pension and insurance (PF&I) sector emerges as a natural counterparty to banks and corporations: overall,... View Details
Keywords: Interest Rates; Investment Funds; Banks and Banking; Insurance; Investment Banking; Risk and Uncertainty
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  • May 2005 (Revised November 2005)
  • Background Note

Note on Credit Derivatives

Provides the basic underlying model for credit risk analysis, as well as covers basic credit risk derivatives, such as asset swaps, credit default swaps, total return of rate swaps, and credit spread options. View Details
Keywords: Credit Derivatives and Swaps; Risk and Uncertainty; Credit
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  • 28 Jul 2015
  • First Look

First Look: July 28, 2015

management literature. Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=47633 Concentrated Capital Losses and the Pricing of Corporate Credit Risk By: Siriwardane, Emil N. Abstract—Using proprietary credit default View Details
Keywords: Carmen Nobel
  • Fast Answer

Bloomberg: corporate bonds

the main menu for the selected bond, note the ticker for future reference; e.g., GM8 1/4 07/23. To analyze bonds: Browse a bond's main menu or type a shortcut and hit GO: CDSW for credit default swap analysis DES for description HP... View Details
  • Web

Behavioral Finance & Financial Stability

non-rational expectations to account for boom-bust macroeconomic cycles. The authors incorporate diagnostic expectations into a workhorse neoclassical business cycle model with heterogeneous firms and risky debt. To generate the size of View Details
  • Web

Research - Behavioral Finance & Financial Stability

neoclassical business cycle model with heterogeneous firms and risky debt. To generate the size of spread increases observed during 2008-9, the model requires only disappointment of overoptimistic beliefs rather than large negative... View Details
  • 08 Sep 2008
  • HBS Case

The Value of Environmental Activists

There are many methods, most financial, to measure the success of companies in meeting goals. But the question becomes a lot harder at Harvard Business School when MBAs are challenged to measure the efforts of environmental organizations like Greenpeace and the World... View Details
Keywords: by Sarah Jane Gilbert; Energy; Utilities
  • 05 Jul 2011
  • First Look

First Look: July 5

takes in the matter of two U.S. Treasury bonds with identical maturity dates but widely different yields. He must decide what to do next. Purchase this supplement:http://cb.hbsp.harvard.edu/cb/product/211050-PDF-ENG Fixed Income Arbitrage in a Financial Crisis (C): TED... View Details
Keywords: Sean Silverthorne
  • 16 Aug 2016
  • First Look

August 16, 2016

https://www.hbs.edu/faculty/Pages/item.aspx?num=51460 Concentrated Capital Losses and the Pricing of Corporate Credit Risk By: Siriwardane, Emil N. Abstract—Using proprietary data on all credit default swap (CDS) transactions in the U.S.... View Details
Keywords: Sean Silverthorne
  • 06 Apr 2010
  • First Look

First Look: April 6

standard deviation increase in the divergence increases the average loan spread by approximately 18%, or 35 basis points. The effect of the excess control rights on the cost of bank debt is more pronounced when the borrowing firm is... View Details
Keywords: Martha Lagace
  • 26 Jun 2018
  • First Look

New Research and Ideas, June 26, 2018

https://www.hbs.edu/faculty/Pages/item.aspx?num=54634 forthcoming Journal of Finance Limited Investment Capital and Credit Spreads By: Siriwardane, Emil N. Abstract—Using proprietary credit default swap... View Details
Keywords: Dina Gerdeman
  • 23 Aug 2004
  • Research & Ideas

New Challenges for Long-Term Investors

long-term bonds are the relevant asset for long-term investors. Thus these investors should care about long-term interest rates. The Fed has control over short-term interest rates, but it is less clear whether it can influence long-term interest rates. In fact, the... View Details
Keywords: by Ann Cullen
  • 04 Aug 2009
  • First Look

First Look: August 4

GM, it is burdened with large pension and other retiree liabilities that threaten to push it into bankruptcy. Bauer-Martin is considering using various credit derivatives (credit default swaps, credit-linked notes, credit default swap... View Details
Keywords: Martha Lagace