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Book Anticipating Credit Events Using Credit Default Swaps  with An Application to Sovereign Debt Crises

Download or read book Anticipating Credit Events Using Credit Default Swaps with An Application to Sovereign Debt Crises written by Mr.Jorge A. Chan-Lau and published by International Monetary Fund. This book was released on 2003-05-01 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Book Anticipating Credit Events Using Credit Default Swaps

Download or read book Anticipating Credit Events Using Credit Default Swaps written by Jorge A. Chan-Lau and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Book Do Rating Announcements convey new Information

Download or read book Do Rating Announcements convey new Information written by Jan Klobucnik and published by diplom.de. This book was released on 2010-07-15 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Introduction: Since the beginning of the last century, investors in capital markets have strongly relied on rating agencies assessments of credit quality to decide on investments. Due to their important role in debt markets, they are supposed to provide accurate ratings without delay. However, cases like the defaults of WorldCom or Enron have damaged their reputation. In particular, credit rating agencies have been heavily criticized for their role during the financial crisis of 2007-2009. Many economists blame the rating agencies for having played a major part in the securitization process of mortgage loans by providing too high rating grades; and thus sowing the seeds of the crisis. Having rated credit derivatives like collateralized debt obligations with best grades, the rating agencies encouraged banks and other financial institutions to keep these assets in their portfolios. As a result, it caused severe problems for the banking sector when these products heavily lost in value. Along with imprecise assessments of creditworthiness, the slow reaction of rating agencies has been critizised over the last few years. Therefore, the question of how well the agencies assess credit quality arises. This question is of great importance because of their dominant role on capital markets and the fact that decisions are made upon their ratings. To put it more precisely, this study asks whether the agencies process and convey new information to the market. On the other hand, it might be the case that market participants anticipate any change in the credit quality of a company before these institutions publish their assessments. Answering this question is of particular importance: if the rating announcements convey unknown information and the market reacts, then rating agencies are a systemic part of capital markets and policy should consider stricter regulation to prevent manipulation and failures like those described above. Conversely, if their announcements do not contain any new information or to put it differently, if markets react faster then we could think about using market based indicators instead in order to assess credit risk. In this case, the economic task of signaling creditworthiness could be handed over, among others, to Credit Default Swaps (see Chapter 2), which is also suggested by Hart & Zingales. This thesis contributes to the field of rating agencies performance measurement. Evaluating their announcements with the [...]

Book Credit Ratings and Credit Default Swaps During the European Sovereign Debt Crisis

Download or read book Credit Ratings and Credit Default Swaps During the European Sovereign Debt Crisis written by Utkarsh Katyaayun and published by . This book was released on 2017 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Book Credit Default Swaps

Download or read book Credit Default Swaps written by Christopher L. Culp and published by Springer. This book was released on 2018-07-12 with total page 356 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book, unique in its composition, reviews the academic empirical literature on how CDSs actually work in practice, including during distressed times of market crises. It also discusses the mechanics of single-name and index CDSs, the theoretical costs and benefits of CDSs, as well as comprehensively summarizes the empirical evidence on important aspects of these instruments of risk transfer. Full-time academics, researchers at financial institutions, and students will benefit from the dispassionate and comprehensive summary of the academic literature; they can read this book instead of identifying, collecting, and reading the hundreds of academic articles on the important subject of credit risk transfer using derivatives and benefit from the synthesis of the literature provided.

Book The negative basis   Credit Default Swap contracts and credit risk during the financial crisis

Download or read book The negative basis Credit Default Swap contracts and credit risk during the financial crisis written by Matthias Schnare and published by GRIN Verlag. This book was released on 2011-10-19 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2010 in the subject Economics - Finance, grade: 5.0 (Schweiz), University of Zurich (Wirtschaftswissenschaften), language: English, abstract: The current developments in the credit or bond markets, influenced by the financial crisis and the economic downturn, revive a discussion about credit derivatives as an instrument of speculation and one cause or determinant of the financial crisis. Currently, CDS are used to speculate against the solvency of the different governments. Critics look at CDS contracts as Overthecounter (OTC) instruments that are not regulated and as bilateral contracts which can have a big influence on the financial position of market participants and on the real credit markets. CDS contracts are mainly instruments for investors to insure against a default of the debtor. For the seller of the CDS they are a possibility to participate in risks he perhaps could not have taken on the bond markets otherwise. These contracts separate the default risk of the debtor from the market conditions, e.g. the market interest rates. They make it possible to only trade the credit risk of a company or a country. Therefore, they can be instruments to proof the bond values and indicators for the real credit risk of the underlying. The discussion about CDS contracts is mostly a discussion including many prejudices and it deals with aspects from different topics which cannot be mixed. Therefore, a clear picture of advantages and disadvantages and especially values and risks of CDS is difficult to be found in the current public discussion and economic newspaper articles. A further phenomenon is that bond markets and CDS markets have lost their connection in the financial crisis. So the credit risk on both markets is valued differently: the prices on the two markets differed so much that market participants used these arbitrage possibilities to earn credit riskfree money for themselves and their customers It can be traded with a simple combination of the underlying bond and the fitting CDS contract. One of the causes of the basis can be the different liquidity level in the two separated markets. For the development of the basis during the crisis it is important to ask how big the changes are compared to the situation before the financial crisis and also how important the credit rating or the industry of the reference entity is.. The price difference, if the CDS price is lower than the credit risk priced by the bond of the same reference entity, is negative basiscalled

Book Credit Default Swap Spreads and Variance Risk Premia  VRP

Download or read book Credit Default Swap Spreads and Variance Risk Premia VRP written by Hao Wang and published by DIANE Publishing. This book was released on 2011-04 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Book Credit Default Swap Trading Strategies

Download or read book Credit Default Swap Trading Strategies written by Wolfgang Schöpf and published by diplom.de. This book was released on 2010-07-23 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Introduction: Credit default swaps are by far the most often traded credit derivatives and the credit default swap markets have seen tremendous growth over the past two decades. Put simply, a credit default swap is a tradeable contract that provides insurance against the default of a certain debtor. Initially, when the first form of a credit default swap (CDS) was traded in 1991, they were mainly used by commercial banks in order to lay off credit risk to insurance companies. However, focus shifted in the subsequent years as new players entered the market. Hedge funds became big players, money managers and reinsurers entered, and banks started to not only buy protection on their assets but also sell protection in order to diversify their portfolios. All this led to today s CDS market being dominated by investors rather than banks and, as a consequence, CDSs are now structured to meet investors needs instead of those of the banks. Over the same time as this shift to an investor orientated market took place, CDS markets grew at an astonishing rate with notional amount outstanding pretty much doubling every year until peaking in the second half of 2007 at USD 62,173.20 billions. The need to effciently transfer credit risk as well as the increasing standardization of CDS contracts by the International Swaps and Derivatives Association propelled this development. Only in 2008 did the notional amount outstanding in CDSs retract for the first time and come down to USD 31,223.10 billion in the first half of 2009. A partial reason was the full blown financial crisis in which CDSs also played a prominent role. The demise of Lehman Brothers, for example, triggered roughly USD 400 billion in protection payments and American International Group needed to be bailed out in 2008 because it had sold too much CDS protection. Amongst other concerns, these incidents highlight the systemic importance of CDSs. Combined with the phenomenal growth of CDS markets, this makes CDSs a highly relevant component of the current ?nancial environment and a fruitful subject for academic research. Today, just like most other financial instruments, CDSs serve a multitude of purposes spanning hedging, speculation, and arbitrage. The aim of this thesis is to explore these uses further and answer the following research questions: What CDS trading strategies are commonly used and how does a selection of these strategies CDS curve trades including forward CDSs, [...]

Book The Risks and Benefits of Credit Default Swaps and the Impact of a New Regulatory Environment

Download or read book The Risks and Benefits of Credit Default Swaps and the Impact of a New Regulatory Environment written by Christoph Theis and published by Haupt Verlag AG. This book was released on 2014 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seit dem Ausbruch der jüngsten Finanzkrise sind Credit Default Swaps (CDS) ins Rampenlicht des akademischen und medialen Interesses gerückt und bilden seitdem den Gegenstand einer kontroversen Diskussion. Auf Europäischer Ebene werden zudem neue regulatorische Rahmenbedingungen eingeführt, die weitreichende Auswirkungen auf den CDS Markt haben werden. Die angesprochenen Kontroversen sowie die bevorstehenden regulatorischen Veränderungen machen den CDS Markt daher zu einem spannenden und wichtigen Forschungsgegenstand. Die vorliegende Dissertation beschäftigt sich in vier Forschungsarbeiten mit den Implikationen des Einsatzes von CDS auf Marktteilnehmer und gibt im speziellen Antworten auf offene Fragen hinsichtlich der Anwendung von Kreditrisikomodellen, des Nutzens und der Risiken von CDS und den Auswirkungen neuer Regulierungen auf den CDS Markt. In Kapitel I werden die theoretischen Grundlagen zur Messung des Kreditrisikos gelegt, wobei der Fokus auf der praktischen Anwendung von Kreditrisikomodellen liegt. Hierbei untersuche ich die zwei gängigsten Kreditrisikomodelle: den firmenwertbasierten sowie den intensitätsbasierten Ansatz. Dabei gewinne ich wichtige Einblicke in den Einsatz von Kreditrisikomodellen im Zusammenhang mit der Nutzung von Kreditderivaten. In Kapitel II werden der Nutzen und die Risiken von CDS unter theoretischen und empirischen Gesichtspunkten einer Analyse unterzogen. Basierend auf der Analyse werden nachfolgend regulatorische Handlungsempfehlungen abgeleitet und diskutiert. Die Ergebnisse zeitigen eine Reihe von Risiken, die sich insbesondere in Krisenzeiten verstärken und daher effektivere zukünftige Regulierungen verlangen. Kapitel III konzentriert sich auf neue regulatorische Anforderungen im CDS Markt. Dabei liegt der Fokus auf der Ausgestaltung der Zentralen Gegenparteien und den Auswirkungen deren Einführung auf die Marktteilnehmer. Die Ergebnisse zeigen, dass Zentrale Gegenparteien ein.

Book The Role of Credit Default Swaps in Leveraged Finance Analysis

Download or read book The Role of Credit Default Swaps in Leveraged Finance Analysis written by Robert S. Kricheff and published by FT Press. This book was released on 2012-10-22 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Normal 0 false false false MicrosoftInternetExplorer4 Credit Default Swaps (CDS) influence how bonds and loans trade and the relative value between bonds and loans. CDS can be the best way to hedge the risk of a corporate debt position and can also be a valuable investment tool in its own right. CDS has a multitude of nuances to it, from how its structured to how it is priced to how it is traded. If you are going to do analysis of corporate debt, especially in the leveraged finance market, you need to understand CDS. This booklet walks you through the basics of how CDS works, gives some perspective on how it has changed since the 2008 crisis and gives practical examples of how CDS is used and analyzed for corporate issuers. It is a valuable summary for anyone looking to do corporate credit analysis.

Book Credit Default Swaps

Download or read book Credit Default Swaps written by Marti Subrahmanyam and published by Now Publishers. This book was released on 2014-12-19 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Book Credit Risk

Download or read book Credit Risk written by Niklas Wagner and published by CRC Press. This book was released on 2008-05-28 with total page 600 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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

Book Anticipating Credit Events Using Credit Default Swaps  with an Application to Sovereign Debt Crises

Download or read book Anticipating Credit Events Using Credit Default Swaps with an Application to Sovereign Debt Crises written by Jorge A. Chan-Lau and published by International Monetary Fund. This book was released on 2003-05 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Book Does the Credit Default Swap Market Anticipate Or React to Credit Rating Agency Announcements

Download or read book Does the Credit Default Swap Market Anticipate Or React to Credit Rating Agency Announcements written by Rui Borrego and published by . This book was released on 2010 with total page 153 pages. Available in PDF, EPUB and Kindle. Book excerpt: Rating announcements do convey entirely new information to the market which is in most cases followed by significant changes in CDS premiums. For positive credit rating events we obtained mixed results which makes a clear verdict, on the question whether the CDS market is also able to anticipate positive rating events, difficult.

Book Are Credit Default Swaps Spreads High in Emerging Markets

Download or read book Are Credit Default Swaps Spreads High in Emerging Markets written by Mr.Manmohan Singh and published by International Monetary Fund. This book was released on 2003-12-01 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: In times of distress when a country loses access to markets, there is evidence that credit default swap (CDS) spreads are a leading indicator for sovereign risk than the EMBI+ sub-index for the country. However, it is not easy to discern the variables that determine the level of CDS spreads in Emerging Markets (EM); traders only quote the CDS spreads and not the inputs that are required to calculate such spreads. This note provides some evidence from Argentina and Brazil that reveals inconsistency between theory and practice in pricing CDS spreads in EM. This note suggests an alternate methodology that links CTD (cheapest-to-deliver) bonds to recovery values assumed in CDS contracts. Furthermore, special features that pertain to CDS contracts (repo specialness, short squeezes by central banks) may also magnify the financial distress of a sovereign.

Book Credit Default Swaps and their Role in the Financial Crisis

Download or read book Credit Default Swaps and their Role in the Financial Crisis written by Klaus Schütz and published by GRIN Verlag. This book was released on 2012-08-07 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2011 in the subject Economics - Finance, grade: A, Union Graduate College, course: Money, Markets and Banking, language: English, abstract: A credit default swap is essentially an insurance contract to hedge credit risk. It is a type of derivative whose value depends on the likelihood of a company defaulting. In this type of derivative two parties enter a contract where one party agrees to pay another in the event of a company defaulting on bond payments (also known as a credit event) for a premium or spread. CDS played a pivotal role in the recent financial crisis. It is also due to CDS that the crisis in the US housing market grew to a danger for the global capital markets. They were mainly responsible for the fall of insurance giant AIG and other turmoil over the course of the financial crisis. In this paper the nature and history of CDS is examinzed and their role in the financial crisis analyzed.

Book Credit Default Swap Spread and Succession Events

Download or read book Credit Default Swap Spread and Succession Events written by Floris Schorer and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A credit default swap (CDS) transfers the credit risk of an underlying asset to a third party in order to protect for a default. CDS spread reflects the credit risk of the company owning the underlying asset. A CDS may lose its connection to the underlying asset with the initiation of some corporate activities, such as mergers and acquisitions, and then fails to cover the credit risk of the company. This article provides a conceptual framework for the relationship between the International Swaps and Derivatives Association (ISDA) succession language and CDS spreads in order to clarify asymmetric spread behavior around corporate activities. A conceptual driver model sets the links between succession issues and company characteristics. Combination of the driver and the succession models helps to assess the potential influence of succession events on CDS spreads.