Stock market investments

Determinants of derivatives market

Dawood Ashraf

Prince Mohammad Bin Fahd University

John A. Goddard

University of Wales, Swansea

Yener Altunbas

University of Wales, Bangor

Credit derivatives enable banks to manage credit risk separately from other types of risk, by transferring selected credit risks to third parties. Recently, global credit derivative markets have expanded rapidly, but a relatively small number of banks still accounts for most of the credit derivative business transacted by the US banking sector. An empirical model is developed for the motivation for participation in credit derivative markets and, conditional on participation, the factors that determine the volume of business transacted. Participation in credit derivative markets appears to be subject to entry barriers, which tend to favour the largest banks. Banks that deal in other derivative products are more likely to transact credit derivatives. Banks that transact such business tend to hold less capital, hold riskier loan portfolios, and derive a relatively high proportion of their income from non-traditional sources.

Number of Pages in PDF File: 26

Keywords: Banking, Credit derivatives

JEL Classification: G12, G21

working papers series

Feedback to SSRN

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved. FAQ Terms of Use Privacy Policy Copyright Contact Us

You might also like
Stock Market in a giant BUBBLE..? Incoming CRASH? - The
Stock Market in a giant BUBBLE..? Incoming CRASH...? - The ...
Stock Market Crash
Stock Market Crash

Yield Hunters' New Tune Echoes Financial Engineering's Past  — Wall Street Journal
And fresh geopolitical angst is again pushing yields lower on benchmark government debt. All this creates incentives for financial engineering.

Related Posts