Work detail

The Regulatory Arbitrage between Basel III and Solvency II: The Role of Alternative Risk Transfers Demonstrated on CDS Spreads - The Case of Italy

Author: Mgr. Petra Budská
Year: 2014 - summer
Leaders: prof. PhDr. Petr Teplý Ph.D.
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 134
Awards and prizes:
Abstract: Different capital regulatory requirements in the bank and insurer markets lead to finding and
using of new more complex financial tools linked with capital release and subsequent
optimization of the investment objectives, but they are also linked with promises and risk
transfers that could cause a collapse or a systemic risk of the financial markets, as evidence by
the recent financial crisis. The aim of my work is to examine the behavior of credit default
swap spreads on the securitization and reinsurance markets, followed by analyzing arbitrage
conditions between securitization and reinsurance markets by cointegration analysis. The
thesis focuses on Italy because it is one of four main European players in the securitization
market and it has highly developed bank and insurer markets. Moreover, it still faces to
consequences of the recent financial crisis that is indicator of strong possible bases for above
mentioned complex financial instruments. On the dataset of Top 8 Italian banks and insurer
companies in the period 2006 – 2012 I showed by cointegration analysis a presence of just
one cointegration relationship between securitization and reinsurance market, therefore I
rejected possibility of arbitrage between these markets. But on the other hand, they converge
to long term equilibrium slowly and uncertain, only 25 % of imbalance is settled during the
process, so the field of using complex financial tools for risk transfers remains wide, the threat
of future market failures actual further supported by lack of transparency of these flows.




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