Credit default swaps and risk-shifting
| Authors |
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| Publication date | 2012 |
| Journal | Economics Letters |
| Volume | Issue number | 117 | 3 |
| Pages (from-to) | 639-641 |
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| Abstract | Credit default swaps (CDSs) are thought to ease borrowing by protecting lenders against default. This paper develops a model of the demand for CDS when borrowers choose the riskiness of investment and verification is imperfect. The model shows that CDSs may lead to risk-shifting, increasing the probability of default. Our model provides new insights into the role of CDS during the recent financial crisis. |
| Document type | Article |
| Language | English |
| Published at | https://doi.org/10.1016/j.econlet.2012.08.013 |
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