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321 result(s)

A Simple Method for Extracting the Probability of Default from American Put Option Prices

Staff Working Paper 2020-15 Bo Young Chang, Greg Orosi
A put option is a financial contract that gives the holder the right to sell an asset at a specific price by (or at) a specific date. A put option can therefore provide its holder insurance against a large drop in the stock price. This makes the prices of put options an ideal source of information for a market-based measure of the probability of a firm’s default.

Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields

Staff Working Paper 2020-14 Guihai Zhao
Given that the stochastic discount factor (SDF) from any equilibrium model has direct implications for yield curves, the historical dynamics of the US Treasury yield curve should tell us what a good SDF should look like from a historical perspective.
Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G0, G00, G1, G12

Optimal Taxation in Asset Markets with Adverse Selection

Staff Working Paper 2020-11 Mohammad Davoodalhosseini
Consider markets for assets traded over the counter such as mortgage-backed securities and corporate bonds. Sellers in these markets may have more information on the value of their assets and their liquidity needs than buyers do. Also, sellers and buyers must search for trade partners, which is time-consuming and costly.

Contagion in Dealer Networks

Staff Working Paper 2020-1 Jean-Sébastien Fontaine, Adrian Walton
Dealers connect investors who want to buy or sell securities in financial markets. Over time, dealers and investors form trading networks to save time and resources. An emerging field of research investigates how networks form.

Creations and Redemptions in Fixed-Income Exchange-Traded Funds: A Shift from Bonds to Cash

The creation and redemption activity of fixed-income exchange-traded funds listed in the United States has shifted. Funds of established issuers have traditionally exchanged their shares for baskets of bonds. In contrast, young funds managed by new issuers tend to create and redeem their shares almost exclusively in cash. Cash transactions imply that new funds are taking on exposure to liquidity risk. This has implications for financial stability.
Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

Furor over the Fed : Presidential Tweets and Central Bank Independence

Staff Analytical Note 2019-33 Antoine Camous, Dmitry Matveev
We illustrate how market data can be informative about the interactions between monetary and fiscal policy. Federal funds futures are private contracts that reflect investor’s expectations about monetary policy decisions.

The Cyber Incident Landscape

Staff Analytical Note 2019-32 Nikil Chande, Dennis Yanchus
The Canadian financial system is vulnerable to cyber threats. But for many firms, cyber risk is difficult to quantify. We examine public information on past cyber incidents to better understand the current risk landscape and find that a holistic view is needed to fully grasp the nature of this risk.
Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G2, G28, M, M1, M15, O, O3, O33, O38

Loan Insurance, Market Liquidity, and Lending Standards

Staff Working Paper 2019-47 Toni Ahnert, Martin Kuncl
Third parties often assume default risk at loan origination in return for a fee. Insurance, various guarantees and external credit enhancements protect the owner of the loan against borrower default. Governments often assume such default risk through guarantees for various types of loans, including mortgages, student loans and small business loans.

Borrowing Costs for Government of Canada Treasury Bills

Staff Analytical Note 2019-28 Jabir Sandhu, Adrian Walton, Jessica Lee
The cost of borrowing Government of Canada treasury bills (t-bills) in the repurchase (repo) market is mainly explained by the relationship between the parties involved. Some pairs of parties conduct most of their repos for t-bills rather than bonds, and at relatively high borrowing costs. We speculate that these pairs have formed a mutually beneficial service relationship in which one party consistently receives t-bills, while the other receives cash at a relatively cheap rate.
Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial markets JEL Code(s): G, G1, G10, G11, G12, G2, G20, G21, G23, G3, G32