Full Text Available
Note: Clicking the button above will open the full text document at the original institutional repository in a new window.
Does default risk rule out covered interest arbitrage?
This dissertation investigates how the default risk of European banks hampers their ability to exploit the basis in international interest rate markets. One of the reasons deviation from the covered interest parity (CIP) condition persists is the cost borne from the added cost of borrowing due to th...
Saved in:
| Main Author: | |
|---|---|
| Other Authors: | |
| Format: | Thesis |
| Language: | English English |
| Published: |
Department of Finance and Tax
2026
|
| Subjects: | |
| Tags: |
No Tags, Be the first to tag this record!
|
| _version_ | 1867613616432218113 |
|---|---|
| access_status_str | Open Access |
| author | Mampuru, Tebogo |
| author2 | Backwell, Alex |
| author_browse | Backwell, Alex Mampuru, Tebogo |
| author_facet | Backwell, Alex Mampuru, Tebogo |
| author_sort | Mampuru, Tebogo |
| collection | Thesis |
| description | This dissertation investigates how the default risk of European banks hampers their ability to exploit the basis in international interest rate markets. One of the reasons deviation from the covered interest parity (CIP) condition persists is the cost borne from the added cost of borrowing due to the default risk of the arbitrageur. Using risk-neutral survival probabilities implied from credit default swap (CDS) data, we determine that when we account for default risk the arbitrage sometimes disappears. It appears that the survival probabilities are relatively low when the CIP basis is high, which is consistent with default risk being a significant obstacle to exploiting the basis. Also, default risk seems to only rule out the basis when the CIP violation is small. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/43143 |
| institution | University of Cape Town (South Africa) |
| language | English eng |
| last_indexed | 2026-06-10T12:38:58.962Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2026 |
| publishDateRange | 2026 |
| publishDateSort | 2026 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/43143 Does default risk rule out covered interest arbitrage? Mampuru, Tebogo Backwell, Alex European banks CDS This dissertation investigates how the default risk of European banks hampers their ability to exploit the basis in international interest rate markets. One of the reasons deviation from the covered interest parity (CIP) condition persists is the cost borne from the added cost of borrowing due to the default risk of the arbitrageur. Using risk-neutral survival probabilities implied from credit default swap (CDS) data, we determine that when we account for default risk the arbitrage sometimes disappears. It appears that the survival probabilities are relatively low when the CIP basis is high, which is consistent with default risk being a significant obstacle to exploiting the basis. Also, default risk seems to only rule out the basis when the CIP violation is small. 2026-04-28T12:59:33Z 2026-04-28T12:59:33Z 2023 2026-04-28T12:23:43Z Thesis / Dissertation Masters Masters http://hdl.handle.net/11427/43143 en eng application/pdf Department of Finance and Tax Faculty of Commerce University of Cape Town |
| spellingShingle | European banks CDS Mampuru, Tebogo Does default risk rule out covered interest arbitrage? |
| thesis_degree_str | Master's |
| title | Does default risk rule out covered interest arbitrage? |
| title_full | Does default risk rule out covered interest arbitrage? |
| title_fullStr | Does default risk rule out covered interest arbitrage? |
| title_full_unstemmed | Does default risk rule out covered interest arbitrage? |
| title_short | Does default risk rule out covered interest arbitrage? |
| title_sort | does default risk rule out covered interest arbitrage |
| topic | European banks CDS |
| url | http://hdl.handle.net/11427/43143 |
| work_keys_str_mv | AT mampurutebogo doesdefaultriskruleoutcoveredinterestarbitrage |