Rollover risk and credit risk under time-varying margin

He, XZ; Lütkebohmert, E; Xiao, Y

Rollover risk and credit risk under time-varying margin

He, XZ

Lütkebohmert, E Xiao, Y

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Publication Type:: Journal Article
Citation:: Quantitative Finance, 2017, 17 (3), pp. 455 - 469
Issue Date:: 2017-03-04

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Field	Value	Language
dc.contributor.author	He, XZ https://orcid.org/0000-0003-1446-9996	en_US
dc.contributor.author	Lütkebohmert, E	en_US
dc.contributor.author	Xiao, Y	en_US
dc.date.issued	2017-03-04	en_US
dc.identifier.citation	Quantitative Finance, 2017, 17 (3), pp. 455 - 469	en_US
dc.identifier.issn	1469-7688	en_US
dc.identifier.uri	http://hdl.handle.net/10453/124426
dc.description.abstract	© 2016 Informa UK Limited, trading as Taylor & Francis Group. For a firm financed by a mixture of collateralized (short-term) debt and uncollateralized (long-term) debt, we show that fluctuations in margin requirements, reflecting funding liquidity shocks, lead to increasing the firm’s default risk and credit spreads. The severity with which a firm is hit by increasing margin requirements highly depends on both its financing structure and debt maturity structure. Our results imply that an additional premium should be added when evaluating debt in order to account for rollover risks, especially for short-matured bonds. In terms of policy implications, our results strongly indicate that regulators should intervene fast to curtail margins in crisis periods and maintain a reasonably low margin level in order to effectively prevent creditors’ run on debt.	en_US
dc.relation.ispartof	Quantitative Finance	en_US
dc.relation.isbasedon	10.1080/14697688.2016.1203071	en_US
dc.subject.classification	Finance	en_US
dc.title	Rollover risk and credit risk under time-varying margin	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	17	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	01 Mathematical Sciences	en_US
utslib.for	14 Economics	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.issue	3	en_US
pubs.publication-status	Published	en_US
pubs.volume	17	en_US

Abstract:

© 2016 Informa UK Limited, trading as Taylor & Francis Group. For a firm financed by a mixture of collateralized (short-term) debt and uncollateralized (long-term) debt, we show that fluctuations in margin requirements, reflecting funding liquidity shocks, lead to increasing the firm’s default risk and credit spreads. The severity with which a firm is hit by increasing margin requirements highly depends on both its financing structure and debt maturity structure. Our results imply that an additional premium should be added when evaluating debt in order to account for rollover risks, especially for short-matured bonds. In terms of policy implications, our results strongly indicate that regulators should intervene fast to curtail margins in crisis periods and maintain a reasonably low margin level in order to effectively prevent creditors’ run on debt.

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http://hdl.handle.net/10453/124426