Mispricing and Arbitrage in CDS Auctions

Gupta, Sudip; Sundaram, Rangarajan K.

doi:10.3905/jod.2015.22.4.079

Cited by 11 publications

(7 citation statements)

References 14 publications

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“…The protection seller then pays the difference between the par value and this auction-identified price per unit of the contract notional to the protection buyer. Gupta and Sundaram (2015), Chernov et al (2013), and Du and Zhu (2017) study theoretically and empirically the auction mechanism to determine settlement price.…”

Section: Single-name Cds Contractsmentioning

confidence: 99%

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The Long and Short of It: The Post-Crisis Corporate CDS Market

2019

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Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use:Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public.If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

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Section: Single-name Cds Contractsmentioning

confidence: 99%

“…For a detailed discussion of the auction mechanism and its efficiency, seeHelwege et al (2009),Gupta and Sundaram (2015),Chernov et al (2013), andDu and Zhu (2017).…”

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confidence: 99%

The Long and Short of It: The Post-Crisis Corporate CDS Market

2019

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“…The actual recovery rates from CDS auctions are slightly lower than actual recovery rates on the underlying bonds. Chernov et al (2013) and Gupta and Sundaram (2015) find a downward bias of about 15% of the bond price (which represents a smaller fraction of par) and attribute it to a liquidity premium.…”

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confidence: 99%

Advances in Credit Risk Modeling and Management

Vrins¹

2020

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Correctly assessing credit risk still represents an important challenge for both practitioners and scholars. On the one hand, credit risk measures play a central role in the banking sector's regulations, governing the profitability of financial institutions which remain at the heart of our economic system. On the other hand, effectively computing such measures in a sound and rigorous way triggers important challenges because of the lack of relevant information and/or models. It is therefore important that academics pursue efforts to improve their models. This book presents some recent advances which methodologically and/or computationally contribute to the more rigorous and reliable management of credit risk of firms. The book covers default and recovery rate models, trade credit, counterparty credit risk, and hybrid product pricing.

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confidence: 99%

The Determinants of Market-Implied Recovery Rates

François

2019

Risks

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In the presence of recovery risk, the recovery rate is a random variable whose risk-neutral expectation can be inferred from the prices of defaultable instruments. I extract market-implied recovery rates from the term structures of credit default swap spreads for a sample of 497 United States (U.S.) corporate issuers over the 2005–2014 period. I analyze the explanatory factors of market-implied recovery rates within a linear regression framework and also within a Tobit model, and I compare them with the determinants of historical recovery rates that were previously identified in the literature. In contrast to their historical counterparts, market-implied recovery rates are mostly driven by macroeconomic factors and long-term, issuer-specific variables. Short-term financial variables and industry conditions significantly impact the slope of market-implied recovery rates. These results indicate that the design of a recovery risk model should be based on specific market factors, not on the statistical evidence that is provided by historical recovery rates.

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Mispricing and Arbitrage in CDS Auctions

Cited by 11 publications

References 14 publications

The Long and Short of It: The Post-Crisis Corporate CDS Market

The Long and Short of It: The Post-Crisis Corporate CDS Market

Advances in Credit Risk Modeling and Management

The Determinants of Market-Implied Recovery Rates

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