This Complimentary Webinar Recording is made possible
through the generous support of NYU Stern School of Business.
CDS Auctions & Informative Biases in CDS Recovery Rates
Professor Sudip Gupta Visiting Assistant Professor of Finance, at NYU Stern School of Business. for Rangarajan Sundaram, Professor of Finance, Faculty member, Master of Science in Risk Management Program at NYU Stern School of Business.
Original Webcast: Tuesday, September 18, 2012 at 12 p.m. U.S. Eastern Time
Abstract: Since 2005, recovery rates in the multi-trillion dollar credit default swap (CDS) market have been determined using a novel and complex auction format.
This webinar undertakes the first detailed empirical investigation of these auctions. We find that the auction price is significantly biased compared to pre- and post-auction market prices for the same instruments, with the average bias exceeding 20%. Nonetheless, we find that the auction is also significantly informative: Econometric analysis shows that information generated in the auction is critical for post-auction market price formation. Auction outcomes are heavily influenced by ``winner's curse'' concerns and by the exercise of monopsonistic market power, each of which contributes to the observed bias. Finally, structural estimation of the auction under some simplifying assumptions suggests that alternative auction formats could reduce substantially the bias in the auction final price.
This webinar will last 60 to 75 minutes.
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About the Presenters:
Rangarajan ("Raghu") Sundaram is Yamaichi Faculty Fellow and Professor of Finance at New York University's Stern School of Business where he teaches derivatives pricing and risk-management.
He received his B.A. in Economics from the University of Madras, India, his M.B.A. from the Indian Institute of Mgmt, Ahmedabad; and his Ph.D. in Economics from Cornell University.
Professor Sundaram's research in finance covers a range of areas including agency problems, executive compensation, corporate finance, derivatives pricing, and credit risk & credit derivatives. He has also published extensively in mathematical economics, decision theory, and game theory. His research has appeared in leading academic journals in finance and economic theory including, Econometrica, Journal of Economic Theory, Journal of Business, Journal of Financial Economics, Journal of Finance, and Review of Financial Studies, as also in several practitioner-oriented journals. He received the Jensen Award in 2001 from the Journal of Financial Economics and was a finalist for the Brattle Prize from the Journal of Finance in 2005. Professor Sundaram is the author of A First Course in Optimization Theory (Cambridge University Press, 1996) and Derivatives: Principles and Practice (Mcgraw-Hill, 2010). He was Co-Editor of the Journal of Derivatives from 2002-08 and has served on several other editorial boards. In 2007, he became the inaugural recipient of the Distinguished Teaching Award from the Stern School of Business.
Professor Gupta joined New York University Stern School of Business as a Visiting Assistant Professor of Finance in September 2012. Sudip’s research interests are auctions, corporate finance and market microstructure. His current research projects include CDS auctions, estimation of informativeness from limit order books, IPOs, treasury auctions and the real effects of bank lending. Professor Gupta is an advisor of the Competition Commission of India. He was a merger simulation expert in many high profile mergers in the US and Canada. His other relevant antitrust capabilities include detection of bid-rigging, price fixing and analysis of market microstructure data. Professor Gupta received an M.A. in Economics from the Delhi School of Economics and a Ph.D. in Economics from University of Wisconsin, Madison, specializing in empirical industrial organization and econometrics.
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