Listen
Publikation Are ratings the worst form of credit assessment except for all the others?(Cambridge University Press, 2018) Blöchlinger, Andreas; Leippold, Markus01A - Beitrag in wissenschaftlicher ZeitschriftPublikation Behavioural modelling for non-maturity deposits: What are the main challenges?(2019) Blöchlinger, Andreas06 - PräsentationPublikation Credit rating and pricing: Poles apart(MDPI, 2018) Blöchlinger, AndreasCorporate credit ratings remove the information asymmetry between lenders and borrowers to find an equilibrium price. Structured finance ratings, however, are informationally insufficient because the systematic risk of equally rated assets can vary substantially. As I demonstrate in a Monte Carlo analysis, highly-rated structured finance bonds can exhibit far higher non-linear systematic risks than lowly-rated corporate bonds. I value credit instruments under a four-moment CAPM, between and within some markets there is no one-to-one relation between expected loss (rating) and credit spread (pricing). The linear CAPM beta is insufficient, buyers and sellers need also the same information on non-linear risk to have an equilibrium.01A - Beitrag in wissenschaftlicher ZeitschriftPublikation Interest rate risk in the banking book: A closed-form solution for non-maturity deposits(Elsevier, 2021) Blöchlinger, AndreasI present an analytical valuation framework for the management of fixed-income instruments traded in imperfectly competitive markets, like demand deposits and credit card loans in the banking book, inter alia, to stabilize the abnormal profit margin. Banking book instruments contain embedded options such as withdrawal rights, discretionary pricing, rate clustering and zero-based floors. Analytical solutions speed up computation time to calculate valuations, earnings and risk measures like closed-form expressions for margin spreads, hedge ratios and parameter sensitivities. Asymptotically, according to martingale central limit theorems and thanks to the long-term nature of the banking book, Gaussian approximations can be applied.01A - Beitrag in wissenschaftlicher ZeitschriftPublikation LIBOR reform: option pricing for compounded rates(2021) Blöchlinger, AndreasI present new analytical pricing formulae for derivatives of compounded rates. Since the announced replacement of LIBOR, the compounded overnight rate has become the new market standard for floating-rate loans and notes. Many contracts contain a zero-based floor. The compounded rate is a time average of a series of benchmark rates. Floors and caps on compounded rates are thus Asian types of options. I prove that even if the rate process is non-Gaussian, the Gaussian process is asymptotically the correct model for pricing derivatives due to Lyapunov's central limit theorem. The approximation's maximum mispricing is bounded by the Berry-Esseen inequality.06 - PräsentationPublikation No economic catastrophe bonds(Portfolio Management Research, 2018) Blöchlinger, AndreasThe Financial Crisis of 2008 did much to discredit the idea of securitization. A recent argument has arisen concerning the idea that a senior tranche of a CDO should be treated as a security whose only risk exposure is to a true economic catastrophe, since anything less would be absorbed by the lower seniority tranches. This means that loss given default would be very large and also very systematic, so the highest rated tranches should be priced to pay larger risk premia than comparably rated single name bonds. Blöchlinger argues that this line of reasoning is wrong in theory, and empirically, observed yield spreads in the market do not support it either. Not only do the AAA tranches default only under the same extreme conditions as government bonds do, but they also benefit from the diversification within the CDO pool. The article demonstrates that this should make the most senior CDO tranches safer than (less diversified) single name bonds of the same rating. A key point in the proof is to recognize that, within the most senior tranche, the effect of diversification in the CDO pool is different for the average dollar of principal value than for the marginal dollar in that tranche (i.e., at the attachment point). Diversification in the pool increases the average value of the senior-most tranche, even though it lowers the value of the marginal dollar.01A - Beitrag in wissenschaftlicher Zeitschrift