CDS Auctions

Chernov, Mikhail; Gorbenko, Alexander S.; Makarov, Igor

doi:10.2139/ssrn.1866266

Cited by 12 publications

(11 citation statements)

References 23 publications

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“…Such auctions must take place within 30 days of a credit event and allow for the delivery of any bonds of a defaulted company from a prespecified list, leading to the cheapest‐to‐deliver option. The value of this option should be small for corporate entities because their bonds tend to trade at approximately the same price after a credit event (Chernov, Gorbenko, and Makarov (2013)).…”

Section: A Primer On Us Sovereign Cdsmentioning

confidence: 99%

A Macrofinance View of U.S. Sovereign CDS Premiums

Chernov¹,

Schmid²,

Schneider

2020

The Journal of Finance

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Premiums on U.S. sovereign credit default swaps (CDS) have risen to persistently elevated levels since the financial crisis. We examine whether these premiums reflect the probability of a fiscal default—a state in which a balanced budget can no longer be restored by raising taxes or eroding the real value of debt by increasing inflation. We develop an equilibrium macrofinance model in which the fiscal and monetary policy stances jointly endogenously determine nominal debt, taxes, inflation, and growth. We show that the CDS premiums reflect the endogenous risk‐adjusted probabilities of fiscal default. The calibrated model is consistent with elevated levels of CDS premiums but leaves dynamic implications quantitatively unresolved.

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Section: A Primer On Us Sovereign Cdsmentioning

confidence: 99%

A Macrofinance View of U.S. Sovereign CDS Premiums

Chernov¹,

Schmid²,

Schneider

2020

The Journal of Finance

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“…Fostel and Geanakoplos (2012) show how the CDS market may have contributed to the crash of 2007-2009. Oehmke and Zawadowski (2015) explore the e↵ect of CDS markets on liquidity in the corporate bond market, and Chernov et al (2013) show that CDS auctions can be biased. Among these theoretical contributions, our paper is most closely related to Bolton and Oehmke (2011), as the channels through which CDSs a↵ect firm value are very similar.…”

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confidence: 99%

The real effects of credit default swaps

Danis

Gamba

2018

Journal of Financial Economics

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“…To the best of our knowledge, two other theoretical models of CDS auctions have been proposed in the literature. The model of Chernov, Gorbenko, and Makarov (, CGM) is an extension of the strategic bidding models of Wilson () and Back and Zender (). CGM (2013) deliver the important insight that CDS auction participants have incentives to manipulate the second‐stage price to profit from their existing CDS positions.…”

Section: Price Bias and Inefficient Allocations In Cds Auctions (Withmentioning

confidence: 99%

Are CDS Auctions Biased and Inefficient?

Du¹,

Zhu²

2017

The Journal of Finance

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We study the design of credit default swaps (CDS) auctions, which determine the payments by CDS sellers to CDS buyers following defaults of bonds. Using a simple model, we find that the current design of CDS auctions leads to biased prices and inefficient allocations. This is because various restrictions imposed in CDS auctions prevent certain investors from participating in the price discovery and allocation process. The imposition of a price cap or floor also gives dealers large influence on the final auction price. We propose an alternative double auction design that delivers more efficient price discovery and allocations.

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CDS Auctions

Cited by 12 publications

References 23 publications

A Macrofinance View of U.S. Sovereign CDS Premiums

A Macrofinance View of U.S. Sovereign CDS Premiums

The real effects of credit default swaps

Are CDS Auctions Biased and Inefficient?

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