I present a transmission mechanism that transformed pricing ambiguity among complex structured products into a marketwide problem. This contagion is explored through a stylized model of bond insurance. Interdependent linkages created by bond insurance open up a possibility of systemic rating downgrades when a bond insurer is downgraded. A credit rating agency's ambiguity attitude is critical in triggering these systemic downgrades, as its aversion to ambiguity makes an insurer downgrade more likely. This has a particularly adverse welfare implication when a large proportion of investors face an investment certi cation constraint.
JEL Classification: G01; G14; G22; G28
Keywords: Credit enhancement; financial guaranty; model uncertainty; ∝- maxmin model; capital coverage
학회소식
[2013년 제 4차] Contagion of ambiguity: bond insurance and systemic
작성자 : 관리자
조회수 : 769
게시일 :
2013-12-16
