RT Journal Article
SR Electronic
T1 Counterparty Risk in Exchange-Traded<br/>Notes (ETNs)
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 76
OP 101
DO 10.3905/jfi.2013.23.1.076
VO 23
IS 1
A1 Balazs Cserna
A1 Ariel Levy
A1 Zvi Wiener
YR 2013
UL https://pm-research.com/content/23/1/76.abstract
AB 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.TOPICS: Counterparty risk, exchange-traded funds and applications