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Credit Default Swaps Study Available Soon

Posted 02/14/08

A new Foundation study, How To Improve Your Risk Return Profile Using Credit Default Swaps, produced for the Foundation by Dr. Deborah Cernauskas of Northern Illinois University, and Dr. Andrew Kumiega of Illinois Institute of Technology, will be available in early Spring.

The paper will show how a credit default swap can be used to hedge the counterparty risk associated with a portfolio of leases and at the same time increase the net present value of uncertain lease cash flows. The authors state that asset finance firms will find that the hedge both reduces the variability of cash flows and hence increases the value of the firm. Additionally, the authors seek to illustrate a methodology to calculate the risk adjusted price for a lease based on the creditworthiness of the lessee.

Other aspects of the paper include exploring the concept of creditworthiness and credit default swaps, offering a sample portfolio and evaluation of the use of credit default swaps to hedge default risk, and presenting presents a methodology for risk based lease pricing.

The paper will be available free to donors and $200 for non-donors at the Foundation online store.

Sites of Reference:
http://www.leasefoundation.org