Accounting Transparency and the Term Structure of Credit Default Swap Spreads PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Accounting Transparency and the Term Structure of Credit Default Swap Spreads PDF full book. Access full book title Accounting Transparency and the Term Structure of Credit Default Swap Spreads by Claus Bajlum. Download full books in PDF and EPUB format.
Author: Claus Bajlum
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
Get Book Here
Book Description
This paper estimates the impact of accounting transparency on the term structure of CDS spreads for a large cross-section of firms. Using a newly developed measure of accounting transparency in Berger, Chen & Li (2006), we find a downward-sloping term structure of transparency spreads. Estimating the gap between the high and low transparency credit curves at the 1, 3, 5, 7 and 10-year maturity, the transparency spread is insignificant in the long end but highly significant and robust at 20 bps at the 1-year maturity. Furthermore, the effect of accounting transparency on the term structure of CDS spreads is largest for the most risky firms. These results are strongly supportive of the model by Duffie & Lando (2001), and add an explanation to the underprediction of short-term credit spreads by traditional structural credit risk models.
Author: Claus Bajlum
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
Get Book Here
Book Description
This paper estimates the impact of accounting transparency on the term structure of CDS spreads for a large cross-section of firms. Using a newly developed measure of accounting transparency in Berger, Chen & Li (2006), we find a downward-sloping term structure of transparency spreads. Estimating the gap between the high and low transparency credit curves at the 1, 3, 5, 7 and 10-year maturity, the transparency spread is insignificant in the long end but highly significant and robust at 20 bps at the 1-year maturity. Furthermore, the effect of accounting transparency on the term structure of CDS spreads is largest for the most risky firms. These results are strongly supportive of the model by Duffie & Lando (2001), and add an explanation to the underprediction of short-term credit spreads by traditional structural credit risk models.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Author: Christopher L. Culp
Publisher: Springer
ISBN: 3319930761
Category : Business & Economics
Languages : en
Pages : 356
Get Book Here
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: Stefan Trück
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
Get Book Here
Book Description
We investigate the term structure of credit spreads and credit default swaps for different rating categories. It is well-known quite that for issuers with lower credit quality higher spreads can be observed in the market and vice versa. However, empirical results on spreads for bonds with the same rating but different maturities are rather controversial. We provide empirical results on the term structure of credit spreads based on a large sample of Eurobonds and domestic bonds from EWU-countries. Further we investigate maturity effects on credit default swaps and compare the results to those of corporate bonds. We find that for both instruments a positive relationship between maturity and spreads could be observed for investment grade debt. For speculative grade debt the results are rather ambiguous. We also find that spreads for the same rating class and same maturity exhibit very high variation.
Author: Patrick Augustin
Publisher:
ISBN:
Category :
Languages : en
Pages : 61
Get Book Here
Book Description
I study the term structure of credit default swap spreads to understand the dynamics of global and country-specific risk factors in explaining the time-variation in sovereign credit risk. The analysis suggests that the shape of the term structure conveys significant information on the relative importance of global and domestic risk. When the spread curve is upward sloping, global shocks are the dominant force underlying changes in the price of sovereign credit risk. Nonetheless, domestic shocks become relatively more important when the term structure is inverted. To draw these conclusions, I develop a recursive preference-based model with long-run risk for credit default swaps. The underlying default process, which modulates expectations about future default probabilities, is modeled to depend both on global macroeconomic uncertainty and country-specific risk. Time-variation in the slope can be explained through the joint dynamics of aggregate and idiosyncratic shocks in connection with investor preferences. Additional supporting evidence of the model-implied results is provided by empirical analysis using a panel of 44 geographically dispersed countries. First, the variation in spreads explained by their first common component decreases during the sovereign debt crisis. Second, country-specific fundamentals explain relatively more spread variation of distressed countries, which are characterized through a downward sloping spread curve. Third, the explanatory power of domestic factors is monotonically increasing with the number of months the term structure was inverted. Overall, these findings support the view that both sources of risk are important, they simply matter at different points in time.
Author: Marti Subrahmanyam
Publisher: Now Publishers
ISBN: 9781601989000
Category : Business & Economics
Languages : en
Pages : 150
Get Book Here
Book Description
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.
Author: Moorad Choudhry
Publisher: Bloomberg Press
ISBN: 1576602362
Category : Business & Economics
Languages : en
Pages : 195
Get Book Here
Book Description
The growth of the credit derivatives market has meant that credit default swaps (CDSs) have been playing a big part in the credit market situation. An understanding of how these instruments work and what they can, and cannot, offer is vital to knowing how to best use them. This book investigates the close relationship between the synthetic and cash markets in credit, which manifests in the credit default swap basis. Choudhry covers: factors that drive the basis implications for market participants the CDS index basis trading the basis Credit market investors and traders as well as anyone with an interest in the global debt markets will find The Credit Default Swap Basis insightful and rewarding.
Author: Ren-Raw Chen
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
Get Book Here
Book Description
Using a large data set on credit default swaps, we study how default risk interacts with interest-rate risk and liquidity risk to jointly determine the term structure of credit spreads. We classify the reference companies into two broad industry sectors, two broad credit rating classes, and two liquidity groups. We develop a class of dynamic term structure models that include (i) two benchmark interest-rate factors to capture the libor and swap rates term structure, (ii) two credit-risk factors to capture the credit swap spreads of high-liquidity group of each industry and rating class, and (iii) both an additional credit-risk factor and a liquidity-risk factor to capture the difference between the high- and low-liquidity groups. Estimation shows that companies in different industry and credit rating classes have different credit-risk dynamics. Nevertheless, in all cases, credit risks exhibit intricate dynamic interactions with the interest-rate factors. Interest-rate factors both affect credit spreads simultaneously, and impact subsequent moves in the credit-risk factors. Within each industry and credit rating class, we also find that the average credit default swap spreads for the high-liquidity group are significantly higher than for the low-liquidity group. Estimation shows that the difference is driven by both credit risk and liquidity differences. The low-liquidity group has a lower default arrival rate and also a much heavier discounting induced by the liquidity risk.
Author: Gracia S. Ugut
Publisher: Penerbit NEM
ISBN: 6231153282
Category : Business & Economics
Languages : en
Pages : 201
Get Book Here
Book Description
Credit default swaps and credit derivatives in general are one of the many specialized derivatives that are used for the purpose of hedging, speculation and arbitrage. The primary purpose of a credit derivative or the need behind the creation of such a product is to serve as a credit risk transfer mechanism. Credit risk is one of the four broadly classified types of risks (others being operational risk, market risk and liquidity risk) is the possibility of a loss resulting from a borrower’s failure to repay a loan or meet contractual obligations. Credit Default Swaps and Credit Derivatives gained popularity in the pre and during Global Financial Crisis in 2008. It has earned a bad reputation since then as it is perceived as one of the most dangerous financial derivatives. The decline in trading volume of emerging market sovereign CDS in the years since the 2008 global financial crisis, along with the steady rise in volume of emerging-market-bond ETFs, might have contributed to this increase in the relative efficiency of bond-price discovery. Credit-Default Swaps (CDS) were generally a better source of price discovery than spreads computed from bond prices. Credit-Default Swaps (CDS) tended to be a better measure of value compared to spreads computed from bonds, which may have been traded infrequently. However, since the COVID-19 crisis, the cash bond market appears to have made strong inroads as the better source for investors to compare relative value and risk.
Author: Wolfgang Schöpf
Publisher: diplom.de
ISBN: 383664973X
Category : Business & Economics
Languages : en
Pages : 86
Get Book Here
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, [...]
