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Author: Mr.Jorge A. Chan-Lau Publisher: International Monetary Fund ISBN: 1451852916 Category : Business & Economics Languages : en Pages : 21
Book Description
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.
Author: Mr.Jorge A. Chan-Lau Publisher: International Monetary Fund ISBN: 1451852916 Category : Business & Economics Languages : en Pages : 21
Book Description
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.
Author: Jorge A. Chan-Lau Publisher: ISBN: Category : Languages : en Pages :
Book Description
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.
Author: Jan Klobucnik Publisher: diplom.de ISBN: 3836649284 Category : Business & Economics Languages : de Pages : 61
Book Description
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 [...]
Author: Christopher L. Culp Publisher: Springer ISBN: 3319930761 Category : Business & Economics Languages : en Pages : 356
Book Description
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.
Author: Utkarsh Katyaayun Publisher: ISBN: Category : Languages : en Pages : 39
Book Description
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.
Author: Matthias Schnare Publisher: GRIN Verlag ISBN: 365603236X Category : Business & Economics Languages : en Pages : 95
Book Description
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
Author: Wolfgang Schöpf Publisher: diplom.de ISBN: 383664973X Category : Business & Economics Languages : en Pages : 86
Book Description
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, [...]
Author: Christoph Theis Publisher: Haupt Verlag AG ISBN: 3258078858 Category : Credit derivatives Languages : en Pages : 152
Book Description
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.
Author: Robert S. Kricheff Publisher: FT Press ISBN: 0133150771 Category : Business & Economics Languages : en Pages : 52
Book Description
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.
Author: Mr.Jorge A. Chan-Lau
Author: Mr.Jorge A. Chan-Lau
Author: Jorge A. Chan-Lau
Author: Jan Klobucnik
Author: Christopher L. Culp
Author: Utkarsh Katyaayun
Author: Matthias Schnare
Author: Hao Wang
Author: Wolfgang Schöpf
Author: Christoph Theis
Author: Robert S. Kricheff