The Single Resolution Fund and the Credit Default Swap: What is the Coasian fair price of their insurance services?

Naszodi, Anna (2019): The Single Resolution Fund and the Credit Default Swap: What is the Coasian fair price of their insurance services?

Abstract

This paper develops an option-based model to analyze the relationship between two insurances both providing protection against bank failures. One of these insurances is offered to European banks by the Single Resolution Fund on a compulsory basis in return for their contributions to the Fund, while the other is by the CDS market. The model provides a theoretical framework for testing whether the contributions of banks are fair in the Coasian sense relative to the CDS spreads.

• Item Type: MPRA Paper
• Language: English
• Keywords: bank resolution; resolution fund; CDS; Coasian tax; Merton model
• Subjects: G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

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