Finance Matters

Finance Matters

Finance Matters: The MIT Sloan Finance Group Blog

Finance Matters is the MIT Sloan Finance Group’s platform for sharing the latest on Finance faculty research, perspectives on financial industry news, MIT Sloan finance-related events, and will feature guest posts from our faculty, students, alumni, and affiliates.

Designing More Efficient CDS Auctions

Posted by Haoxiang Zhu on December 18, 2013

Credit default swaps (CDS) are an important derivative class. According to the Bank for International Settlements, as of June 2013, CDS contracts have $24 trillion notional amount outstanding and $725 billion market value globally. A CDS contract is a default insurance contract written on a firm, loan or sovereign country. Buyers of protection (CDS buyers) pay periodic premiums on a notional amount of debt to sellers of protection (CDS sellers), until the contract expires or default occurs, whichever is earlier.…

Stress test scenarios miss the boat

Posted by Jonathan Parker on November 5, 2013

The Dodd-Frank act requires that large financial institutions be more closely monitored for exposure to systematic risks.  A key part of this monitoring is stress testing.  Regulators announce a set of adverse scenarios, and financial institutions calculate and report their losses in each scenario.  Regulators get to see how exposed the institutions are. The OCC has now released the scenarios for 2014.  You can easily download and look at them here.  The scenarios detail lots of economic outcomes: each scenario has…

Optimal Contracting and the Securitization of Human Capital

Posted by Jonathan Parker on November 1, 2013

An interesting new company, Fantex, is securitizing human capital.  They are offering assets whose payouts are determined by a given athlete’s future earnings, in this case both Arian Foster and Vernon Davis, players in the National Football League.  Here is a New York Times article from today, and here is a more complete description from former Goldman Sachs employee and current Grantland writer Katie Baker.  (Before heading out to buy, note that the convertible bonds that the story describes are pretty complex and not…

Opinions expressed in this blog are that of individuals and do not reflect the general opinion of Massachusetts Institute of Technology and MIT Sloan.