Abstract

http://ssrn.com/abstract=1278084
 
 

References (31)



 
 

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Counterparty Risk in Financial Contracts: Should the Insured Worry About the Insurer?


James R. Thompson


University of Waterloo - School of Accounting and Finance

October 26, 2009


Abstract:     
We analyze the effect of counterparty risk on financial insurance contracts, using the case of credit risk transfer in banking. This paper posits a new moral hazard problem on the insurer side of the market, which causes the insured party to be exposed to excessive counterparty risk. We find that this counterparty risk can create an incentive for the insured party to reveal superior information about the likelihood of a claim. In particular, a unique separating equilibrium may exist, even in the absence of any costly signalling device.

Number of Pages in PDF File: 47

Keywords: Counterparty Risk, Moral Hazard, Banking, Credit Derivatives, Insurance

JEL Classification: G21, G22, D82

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Date posted: October 6, 2008 ; Last revised: May 14, 2011

Suggested Citation

Thompson, James R., Counterparty Risk in Financial Contracts: Should the Insured Worry About the Insurer? (October 26, 2009). Available at SSRN: http://ssrn.com/abstract=1278084 or http://dx.doi.org/10.2139/ssrn.1278084

Contact Information

James R. Thompson (Contact Author)
University of Waterloo - School of Accounting and Finance ( email )
Waterloo, Ontario N2L 3G1
Canada
HOME PAGE: http://arts.uwaterloo.ca/~james
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