Zombie Trade: The Return of Basis rbitrage From Beyond the Grave
Date Issued
2009
Date
2009
Author(s)
Belzer, Kyle
Abstract
The basis arbitrage trading strategy collapsed at the end of 2008, causing billions of dollars in losses for investment banks and hedge funds. New trading mentalities and practices have revived this trade and adapted it to current market conditions. This paper presents a rigorous analysis of new practices in fixed income credit trading, including what factors affect mark-to-market valuation and long-term returns on the new basis trade. Special attention is paid to the way holding basis affects the relationship between debtor and creditor. Finally, I comment on the long-term sustainability of the new basis trade.
Subjects
single name CDS
credit derivative trading
basis
basis arbitrage
Type
thesis
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ntu-98-R96723072-1.pdf
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