Abstract
This article addresses the issue of counterparty credit risk in exchange-traded notes (ETNs). An ETN is a tracking product that is designed as an unsecured debt security and is therefore subject to the issuer’s default risk. The authors use a standard reduced-form pricing framework to gauge the theoretical effect credit risk should have on ETNs. They then derive firm-specific credit risk measures by using real market data to construct model-implied risk-adjusted ETN prices. Their results indicate that a substantial credit risk discount should be priced into ETNs. In sharp contrast, however, based on real market ETN quotes, they found very little evidence for credit risk pricing by market players. <b>TOPICS:</b>Counterparty risk, exchange-traded funds and applications
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
