Articles

The Term Structure of Interbank Risk

D. FILIPOVIC, A. TROLLE

Journal of Financial Economics

septembre 2013, vol. 109, n°3, pp.707-733

Départements : Finance

Mots clés : Interbank riskLIBORInterest rate swapsDefault riskLiquidity

http://www.sciencedirect.com/science/article/pii/S0304405X13000949


We infer a term structure of interbank risk from spreads between rates on interest rate swaps indexed to the London Interbank Offered Rate (LIBOR) and overnight indexed swaps. We develop a tractable model of interbank risk to decompose the term structure into default and non-default (liquidity) components. From August 2007 to January 2011, the fraction of total interbank risk due to default risk, on average, increases with maturity. At short maturities, the non-default component is important in the first half of the sample period and is correlated with measures of funding and market liquidity. The model also provides a framework for pricing, hedging, and risk management of interest rate swaps in the presence of significant basis risk


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