Anticipating Credit Events Using Credit Default Swaps With An Application To Sovereign Debt Crises
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Anticipating Credit Events Using Credit Default Swaps With An Application To Sovereign Debt Crises
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Author : Mr.Jorge A. Chan-Lau
language : en
Publisher: International Monetary Fund
Release Date : 2003-05-01
Anticipating Credit Events Using Credit Default Swaps With An Application To Sovereign Debt Crises written by Mr.Jorge A. Chan-Lau and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-05-01 with Business & Economics categories.
In reduced-form pricing models, it is usual to assume a fixed recovery rate to obtain the probability of default from credit default swap prices. An alternative credit risk measure is proposed here: the maximum recovery rate compatible with observed prices. The analysis of the recent debt crisis in Argentina using this methodology shows that the correlation between the maximum recovery rate and implied default probabilities turns negative in advance of the credit event realization. This empirical finding suggests that the maximum recovery rate can be used for constructing early warning indicators of financial distress.
Anticipating Credit Events Using Credit Default Swaps
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Author : Jorge A. Chan-Lau
language : en
Publisher:
Release Date : 2008
Anticipating Credit Events Using Credit Default Swaps written by Jorge A. Chan-Lau and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
In reduced-form pricing models, it is usual to assume a fixed recovery rate to obtain the probability of default from credit default swap prices. An alternative credit risk measure is proposed here: the maximum recovery rate compatible with observed prices. The analysis of the recent debt crisis in Argentina using this methodology shows that the correlation between the maximum recovery rate and implied default probabilities turns negative in advance of the credit event realization. This empirical finding suggests that the maximum recovery rate can be used for constructing early warning indicators of financial distress.
Credit Ratings And Credit Default Swaps During The European Sovereign Debt Crisis
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Author : Utkarsh Katyaayun
language : en
Publisher:
Release Date : 2017
Credit Ratings And Credit Default Swaps During The European Sovereign Debt Crisis written by Utkarsh Katyaayun and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
We investigate the relationship between credit rating events and credit default swap spreads for EU countries around the Subprime and European Debt Crises. Using event studies and OLS regressions we analyse the behavior of CDS spreads before, around and after credit rating events. Our results indicate that CDS spreads anticipate positive rating events as early as 2-3 months before the event however the anticipation for negative events is only 1-2 months prior; in addition we also observe announcement and post announcement effects in some instances. We also find that the behavior of CDS spreads and credit rating events has undergone a significant change after the crisis period. On similar lines, using logit and multinomial logit regressions we find that a change in CDS spreads are effective in predicting forthcoming credit rating events.
Anticipating Credit Events Using Credit Default Swaps With An Application To Sovereign Debt Crises
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Author : Jorge A. Chan-Lau
language : en
Publisher: International Monetary Fund
Release Date : 2003-05
Anticipating Credit Events Using Credit Default Swaps With An Application To Sovereign Debt Crises written by Jorge A. Chan-Lau and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-05 with Business & Economics categories.
In reduced-form pricing models, it is usual to assume a fixed recovery rate to obtain the probability of default from credit default swap prices. An alternative credit risk measure is proposed here: the maximum recovery rate compatible with observed prices. The analysis of the recent debt crisis in Argentina using this methodology shows that the correlation between the maximum recovery rate and implied default probabilities turns negative in advance of the credit event realization. This empirical finding suggests that the maximum recovery rate can be used for constructing early warning indicators of financial distress.
Credit Default Swaps
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Author : Marti Subrahmanyam
language : en
Publisher: Now Publishers
Release Date : 2014-12-19
Credit Default Swaps written by Marti Subrahmanyam and has been published by Now Publishers this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-12-19 with Business & Economics categories.
Credit Default Swaps: A Survey is the most comprehensive review of all major research domains involving credit default swaps (CDS). CDS have been growing in importance in the global financial markets. However, their role has been hotly debated, in industry and academia, particularly since the credit crisis of 2007-2009. The authors review the extant literature on CDS that has accumulated over the past two decades and divide the survey into seven topics after providing a broad overview in the introduction. The second section traces the historical development of CDS markets and provides an introduction to CDS contract definitions and conventions. The third section discusses the pricing of CDS, from the perspective of no-arbitrage principles, structural, and reduced-form credit risk models. It also summarizes the literature on the determinants of CDS spreads, with a focus on the role of fundamental credit risk factors, liquidity and counterparty risk. The fourth section discusses how the development of the CDS market has affected the characteristics of the bond and equity markets, with an emphasis on market efficiency, price discovery, information flow, and liquidity. Attention is also paid to the CDS-bond basis, the wedge between the pricing of the CDS and its reference bond, and the mispricing between the CDS and the equity market. The fifth section examines the effect of CDS trading on firms' credit and bankruptcy risk, and how it affects corporate financial policy, including bond issuance, capital structure, liquidity management, and corporate governance. The sixth section analyzes how CDS impact the economic incentives of financial intermediaries. The seventh section reviews the growing literature on sovereign CDS and highlights the major differences between the sovereign and corporate CDS markets. The eighth section discusses CDS indices, especially the role of synthetic CDS index products backed by residential mortgage-backed securities during the financial crisis. The authors close with our suggestions for promising future research directions on CDS contracts and markets.
Rating The Rating Agencies
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Author : Mr.Amadou N. R. Sy
language : en
Publisher: International Monetary Fund
Release Date : 2003-06-01
Rating The Rating Agencies written by Mr.Amadou N. R. Sy and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-06-01 with Business & Economics categories.
In contrast to the early-warning system literature, we find that currency and debt crises are not closely linked in emerging markets. We find that after 1994, credit ratings predict debt crises but fail to anticipate currency crises. When debt crises are defined as sovereign distress-when spreads are higher than 1,000 basis points-we find that countries experience reduced capital market access and high interest rates on their external debt for typically more than two quarters. We also find that lagged ratings and ratings changes, including negative outlooks and credit watches, anticipate such debt crises.
Credit Risk
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Author : Niklas Wagner
language : en
Publisher: CRC Press
Release Date : 2008-05-28
Credit Risk written by Niklas Wagner and has been published by CRC Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-05-28 with Business & Economics categories.
Featuring contributions from leading international academics and practitioners, Credit Risk: Models, Derivatives, and Management illustrates how a risk management system can be implemented through an understanding of portfolio credit risks, a set of suitable models, and the derivation of reliable empirical results. Divided into six sectio
The Fundamental Determinants Of Credit Default Risk For European Large Complex Financial Institutions
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Author : Jiri Podpiera
language : en
Publisher: International Monetary Fund
Release Date : 2010-06-01
The Fundamental Determinants Of Credit Default Risk For European Large Complex Financial Institutions written by Jiri Podpiera and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-06-01 with Business & Economics categories.
This paper attempts to identify the fundamental variables that drive the credit default swaps during the initial phase of distress in selected European Large Complex Financial Institutions (LCFIs). It uses yearly data over 2004 - 08 for 29 European LCFIs. The results from a dynamic panel data estimator show that LCFIs’ business models, earnings potential, and economic uncertainty (represented by market expectations about the future risks of a particular LCFI and market views on prospects for economic growth) are among the most significant determinants of credit risk. The findings of the paper are broadly consistent with those of the literature on bank failure, where the determinants of the latter include the entire CAMELS structure - that is, Capital Adequacy, Asset Quality, Management Quality, Earnings Potential, Liquidity, and Sensitivity to Market Risk. By establishing a link between the financial and market fundamentals of LCFIs and their CDS spreads, the paper offers a potential tool for fundamentals-based vulnerability and early warning system for LCFIs.
Debt Crises And The Development Of International Capital Markets
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Author : Mr.Andrea Pescatori
language : en
Publisher: International Monetary Fund
Release Date : 2004-03-01
Debt Crises And The Development Of International Capital Markets written by Mr.Andrea Pescatori and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004-03-01 with Business & Economics categories.
Crises on external sovereign debt are typically defined as defaults. Such a definition accurately captures debt-servicing difficulties in the 1980s, a period of numerous defaults on bank loans. However, defining defaults as debt crises is problematic for the 1990s, when sovereign bond markets emerged. In contrast to the 1980s, the 1990s are characterized by significant foreign debt-servicing difficulties but fewer sovereign defaults. In order to capture this evolution of debt markets, we define debt crises as events occurring when either a country defaults or its bond spreads are above a critical threshold. We find that our definition outperforms the default-based definition in capturing debt-servicing difficulties and, consequently, in fitting the post-1994 period. In particular, liquidity indicators are significant in explaining our definition of debt crises, while they do not play any role in explaining defaults after 1994.
Sovereign Risk And Financial Crises
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Author : Michael Frenkel
language : en
Publisher: Springer Science & Business Media
Release Date : 2013-03-14
Sovereign Risk And Financial Crises written by Michael Frenkel and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-03-14 with Business & Economics categories.
Sovereign risk and financial crises play a key role in current international economic developments, particularly in the case of economic downturns. As the Asian economic crisis in the late 1990s revealed once again, financial crises are the rule rather than the exception in capitalist economies. The event also revealed that international public debt agreements are contingent claims. In a world of increasing economic interdependencies, the issues of financial crises and country defaults are of critical importance. This volume goes to the heart of the academic discussion on sovereign risk and financial crises by centering on quantitative-empirical aspects, evaluating prominent approaches, and by proposing new methods. Part I of the volume identifies key factors and processes that are central in analyzing sovereign risk while Part II focuses on the determinants and effects of financial crises.