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  • 2023
  • Working Paper

Digital Lending and Financial Well-Being: Through the Lens of Mobile Phone Data
By: AJ Chen, Omri Even-Tov, Jung Koo Kang and Regina Wittenberg-Moerman
By leveraging machine-learning algorithms and using nontraditional digital data derived primarily from borrowers’ mobile devices, digital lenders have vastly expanded access to credit in developing economies for millions of individuals without a prior credit history....  View Details
Keywords: Borrowing and Debt; Credit; AI and Machine Learning; Welfare; Well-being; Developing Countries and Economies
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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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  • Article

CDS Trading and Nonrelationship Lending Dynamics
By: Jung Koo Kang, Christopher Williams and Regina Wittenberg-Moerman
We investigate how credit default swaps (CDSs) affect lenders’ incentives to initiate new lending relationships. We predict that CDSs reduce adverse selection that nonrelationship lead arrangers face when competing for loans. Consistently, we find that a loan is...  View Details
Keywords: Credit Default Swaps; CDS Market; Non-relationship Lending; Debt Contracts; Adverse Selection; Lending Monitoring; Cross-selling
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  • 2020
  • Working Paper

Currency Hedging in Emerging Markets: Managing Cash Flow Exposure
By: Laura Alfaro, Mauricio Calani and Liliana Varela
Foreign currency derivative markets are among the largest in the world, yet their role in emerging markets in particular, is relatively understudied. We study firms' currency risk exposure and their hedging choices by employing a unique dataset covering the universe of...  View Details
Keywords: Foreign Currency Hedging; FX Derivatives; Foreign Currency Debt; Currency Mismatch; Trade Credit; Currency; Cash Flow; Emerging Markets
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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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  • 2018
  • Working Paper

OTC Intermediaries
By: Andrea L. Eisfeldt, Bernard Herskovic, Sriram Rajan and Emil Siriwardane
Over-the-counter (OTC) markets for financial assets are dominated by a relatively small number of core intermediaries and a large number of peripheral customers. In this paper, we develop a model of trade in a core-periphery network and estimate its key structural...  View Details
Keywords: OTC Markets; Intermediaries; Dealers; Credit Default Swaps; Risk Sharing; Networks; Price; Risk and Uncertainty
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  • August 2017
  • Teaching Note

Exotic Interest Rate Swaps: Snowballs in Portugal
By: Boris Vallee, Patrick Augustin and Philippe Rich
This case explores a complex swap transaction implemented by Metro do Porto in 2007. It represents an opportunity to study fixed income derivative instruments, such as plain-vanilla swaps and structured swaps, as well as understand the opportunities and challenges of...  View Details
Keywords: Swaps; Public Finance; Structured Finance; Credit Derivatives and Swaps; Public Sector; Transportation Industry; Rail Industry; Portugal
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  • January 2017
  • Case

Exotic Interest Rate Swaps: Snowballs in Portugal
By: Boris Vallee, Patrick Augustin and Philippe Rich
This case explores a complex swap transaction implemented by Metro do Porto in 2007. It represents an opportunity to study fixed income derivative instruments, such as plain-vanilla swaps and structured swaps, as well as understand the opportunities and challenges of...  View Details
Keywords: Swaps; Public Finance; Structured Finance; Credit Derivatives and Swaps; Public Sector; Transportation Industry; Rail Industry; Portugal
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  • August 2015
  • Article

Dollar Funding and the Lending Behavior of Global Banks
By: Victoria Ivashina, David S. Scharfstein and Jeremy C. Stein
A large share of dollar-denominated lending is done by non-U.S. banks, particularly European banks. We present a model in which such banks cut dollar lending more than euro lending in response to a shock to their credit quality. Because these banks rely on wholesale...  View Details
Keywords: Banks; Global Banks; Credit Supply; Dollar Funding; International Finance; Banks and Banking; Banking Industry
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  • October 2013 (Revised December 2013)
  • Teaching Note

Blackstone and the Sale of Citigroup's Loan Portfolio Teaching Note
By: Victoria Ivashina and David Scharfstein
Keywords: Derivatives; Bankruptcy; Credit Derivatives and Swaps; Private Equity; Restructuring; Insolvency and Bankruptcy; Banks and Banking; Banking Industry; Financial Services Industry
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  • October 2013 (Revised November 2013)
  • Case

Blackstone and the Sale of Citigroup's Loan Portfolio
By: Victoria Ivashina and David Scharfstein
The credit boom that preceded the 2007-2009 financial crisis led to several lending practices that exposed banks to large risks. In particular, when the financial crisis unraveled, there were several billion dollars' worth of leveraged buyout (LBO) loans that were...  View Details
Keywords: Restructuring; Private Equity; Insolvency and Bankruptcy; Credit Derivatives and Swaps; Financial Markets; Investment; Banking Industry; Financial Services Industry
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  • January 2013 (Revised April 2017)
  • Supplement

Maxum Petroleum, Inc.
By: W. Carl Kester
Maxum seeks an oil-price hedging strategy that yields substantial cash during oil price spikes, is affordable under ordinary circumstances, and is easily managed. It is striving to avoid a repeat of the challenging situation encountered in 2008 when spiking oil prices...  View Details
Keywords: Hedging; Options; Commodities; Credit Derivatives and Swaps; Risk Management; Futures and Commodity Futures; Financial Strategy; Volatility
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  • November 2010
  • Case

Lessons Learned? Brooksley Born & the OTC Derivatives Market (A)
By: Clayton S. Rose and David Lane
On May 7, 1998, the U.S. Commodity Futures Trading Commission, chaired by Brooksley Born, issued a "Concept Release" inviting public comment on the relevance and appropriateness of existing regulation of the over-the-counter (OTC) derivatives market, a market with a...  View Details
Keywords: Financial Crisis; Credit Derivatives and Swaps; Governing Rules, Regulations, and Reforms; Policy; Business and Government Relations; Financial Services Industry; Public Administration Industry; District of Columbia
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  • November 2010
  • Supplement

Lessons Learned? Brooksley Born & the OTC Derivatives Market (B)
By: Clayton S. Rose and David Lane
This (B) case provides the 2009 reflections of former SEC Chairman Arthur Levitt on CFTC Chairman Brooksley Born's 1998 efforts to consider regulating the OTC derivative market. It also provides a summary of the aspects of the 2010 Dodd-Frank Act that regulate these...  View Details
Keywords: Financial Crisis; Credit Derivatives and Swaps; Governing Rules, Regulations, and Reforms; Policy; Government Legislation; Business and Government Relations; Financial Services Industry; Public Administration Industry; District of Columbia
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  • February 2010
  • Case

Saginaw Parts Co. and the General Motors Corp. Credit Default Swap
By: William E. Fruhan
This two-page case demonstrates how to unbundle the cost of credit extensions from product prices by observing the price of a credit default swap. It also explores how credit default swaps work, and how trade creditors are treated under U.S. bankruptcy law. Finally it...  View Details
Keywords: Trade; Credit; Insolvency and Bankruptcy; Credit Derivatives and Swaps; Laws and Statutes; Risk Management; Auto Industry; United States
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  • February 2010
  • Teaching Note

Saginaw Parts Co. and the General Motors Corp. Credit Default Swap (TN)
By: William E. Fruhan
Teaching Note for [210056].  View Details
Keywords: Credit Derivatives and Swaps; Insolvency and Bankruptcy; Law; Cost of Capital; United States
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  • July 2009 (Revised July 2009)
  • Case

Delphi Corp. and the Credit Derivatives Market (A)
By: Stuart C. Gilson, Victoria Ivashina and Sarah Abbott
In 2005, Jane Bauer-Martin, a hedge fund manager, is considering what she should do with the fund's large investment in the publicly traded bonds of Delphi Corp., a financially troubled auto parts supplier. Delphi is General Motor's key auto parts supplier, and, like...  View Details
Keywords: Borrowing and Debt; Insolvency and Bankruptcy; Credit Derivatives and Swaps; Bonds; Financial Management; Risk Management
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  • October 2008
  • Teaching Note

Samoa Tala (TN)
By: Joshua D. Coval, Bhagwan Chowdhry and Konark Saxena
Teaching Note for [209053].  View Details
Keywords: Currency Exchange Rate; Risk Management; Credit Derivatives and Swaps; Microfinance; Strategy; Borrowing and Debt; Currency; Cash Flow; Samoa
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  • January 2008
  • Background Note

Collateralized Debt Obligations (CDOs)
By: Joshua Coval and Erik Stafford
This lesson integrated Merton's (1974) contingent claims model of debt and equity claims with the CAPM, which allows us to examine the risks and pricing of credit portfolios and the derivative claims issued against them. In particular, this model is used to make...  View Details
Keywords: Decision Choices and Conditions; Borrowing and Debt; Credit Derivatives and Swaps; Investment Portfolio; Risk Management
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  • December 2007
  • Article

Applying Modern Risk Management to Equity and Credit Analysis
By: Robert C. Merton
Traditional conventions of accounting and actuarial science distort the valuation of capital risk in corporations with pension plans because under these conventions, pension assets and liabilities are not included in balance sheet calculations. The modern risk...  View Details
Keywords: Risk Management; Valuation; Financial Reporting; Decision Making; Credit; Financial Statements; Capital; Equity; Compensation and Benefits
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