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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?

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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.

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