Abstract:As observed in the financial crisis, CDS spreads tend to increase simutaneously as a reaction to common shocks. Focusing on the spillover effects triggered by extreme events, we propose a credit risk analysis tool by applying credit default swap spread returns to the concept of CoVaR suggested by Adrian and Brunnermeier (2011). The interconnection and mutual impact on credit spreads are investigated based on CDS spreads of the biggest derivative dealers in the market. By including factors identified as determi… Show more
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