05692oam 22013934 450 991082747900332120240402051111.01-4623-8806-X1-4527-7832-91-4518-7209-797866128428321-282-84283-8(CKB)3170000000055233(EBL)1608234(SSID)ssj0000939942(PQKBManifestationID)11596388(PQKBTitleCode)TC0000939942(PQKBWorkID)10937986(PQKB)11101171(OCoLC)518508975(IMF)WPIEE2009062(MiAaPQ)EBC1608234(EXLCZ)99317000000005523320020129d2009 uf 0engur|n|---|||||txtccrThe Use (and Abuse) of CDS Spreads During Distress /Carolyne Spackman, Manmohan Singh1st ed.Washington, D.C. :International Monetary Fund,2009.1 online resource (13 p.)IMF Working PapersDescription based upon print version of record.1-4519-1644-2 Includes bibliographical references.Contents; I. Introduction; II. Recent Distress in Financial Institutions; Figures; 1. Landsbanki; 2. Washington Mutual; 3. Lehman Brothers; III. Policy Implications of Using Stochastic Recovery; Table 1. CDS Settlements Determined Under the ISDA Cash Opt-in Protocol; Box 1. Ecuador ISDA Auction; Appendix I. Recovery Swaps, or Where the Ctd Bonds End Up; ReferencesCredit Default Swap spreads have been used as a leading indicator of distress. Default probabilities can be extracted from CDS spreads, but during distress it is important to take account of the stochastic nature of recovery value. The recent episodes of Landbanski, WAMU and Lehman illustrate that using the industry-standard fixed recovery rate assumption gives default probabilities that are low relative to those extracted from stochastic recovery value as proxied by the cheapest-to-deliver bonds. Financial institutions using fixed rate recovery assumptions could have a false sense of security, and could be faced with outsized losses with potential knock-on effects for other institutions. To ensure effective oversight of financial institutions, and to monitor the stability of the global financial system especially during distress, the stochastic nature of recovery rates needs to be incorporated.IMF Working Papers; Working Paper ;No. 2009/062Credit derivativesDerivative securitiesInvestments: BondsimfMacroeconomicsimfMoney and Monetary PolicyimfInternational Lending and Debt ProblemsimfBanksimfDepository InstitutionsimfMicro Finance InstitutionsimfMortgagesimfBankruptcyimfLiquidationimfInformation and Market EfficiencyimfEvent StudiesimfFinancial Institutions and Services: Government Policy and RegulationimfMonetary Policy, Central Banking, and the Supply of Money and Credit: GeneralimfGeneral Financial Markets: General (includes Measurement and Data)imfPrice LevelimfInflationimfDeflationimfMonetary SystemsimfStandardsimfRegimesimfGovernment and the Monetary SystemimfPayment SystemsimfMonetary economicsimfInvestment & securitiesimfCredit default swapimfBondsimfAsset pricesimfCurrenciesimfCreditimfMoneyimfFinancial institutionsimfPricesimfEcuadorimfCredit derivatives.Derivative securities.Investments: BondsMacroeconomicsMoney and Monetary PolicyInternational Lending and Debt ProblemsBanksDepository InstitutionsMicro Finance InstitutionsMortgagesBankruptcyLiquidationInformation and Market EfficiencyEvent StudiesFinancial Institutions and Services: Government Policy and RegulationMonetary Policy, Central Banking, and the Supply of Money and Credit: GeneralGeneral Financial Markets: General (includes Measurement and Data)Price LevelInflationDeflationMonetary SystemsStandardsRegimesGovernment and the Monetary SystemPayment SystemsMonetary economicsInvestment & securitiesCredit default swapBondsAsset pricesCurrenciesCreditMoneyFinancial institutionsPrices338.267Spackman Carolyne1681943Singh Manmohan1631304DcWaIMFBOOK9910827479003321The Use (and Abuse) of CDS Spreads During Distress4051693UNINA