Bears Quote by Fischer Black
“Thus a long term corporate bond could actually be sold to three separate persons. One would supply the money for the bond; one would bear the interest rate risk, and one would bear the risk of default. The last two would not have to put up any capital for the bond, though they might have to post some sort of collateral.”
About This Quote
A corporate bond can be split into three roles: funder, interest‑rate risk taker, and default risk taker, allowing risk sharing without full capital from each.
In simple terms: Bond risk can be divided among three parties.
Key Takeaway
Structure deals to share risk.
Themes
finance
risk management
innovation
Mood
analytical
pragmatic
Type
technical
informative
When to use this quote
- investment banking
- portfolio construction
- risk hedging
Key Concepts
financial engineering
structured finance
Questions to Reflect On
- How would you allocate risk in a new bond issue?
- What safeguards are needed for each party?
A Different Perspective
Complex structures may increase legal and operational costs.
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