Pricing the bail-out

In an introduction to this month’s Cutting Edge, Risk’s technical editor, Mauro Cesa, and assistant technical editor, Laurie Carver, look at a new model proposed by a former Risk magazine quant of the year, which attempts to quantify the effect of state guarantees on the market value of banks, as well as the capital required to counteract it

The political and regulatory fallout from the unprecedented state intervention into the financial markets over the past year shows no sign of abating. The revelation last month that the Bank of England had lent an additional £62 billion to HBOS and Royal Bank of Scotland (RBS) at the height of the financial crisis comes against a backdrop of heated debate over so-called Tobin taxes on financial