On Pricing Credit Default Swaps with Observable Covariates

The Determinants of the CDS Spreads: Stock Illiquidity and Peer Information

“…Doshi, Ericsson, Jacobs, and Turnbull (2013) find that market variables including 6-month Treasury yield and the difference between the 10-year and 6-month yields explain cross-sectional CDS variation. Conrad, Dittmar, and Hameed (2011) find changes in the CDS spreads of the systematically important financial institutions lead changes in the CDS spreads of other firms.…”

“…Doshi, Ericsson, Jacobs, and Turnbull (2013), e.g., show that historical volatility of the underlying stock predicts changes in CDS spreads. We estimate the historical volatility of daily stock returns over one month prior to the date of interest.…”

“…(1) Bond market factors are expected to affect CDS spreads as bond and CDS markets co-move (Doshi, Ericsson, Jacobs, and Turnbull 2013). We use several systematic bond market factors:…”

“…For example, Tang and Yan (2007) and Corò, Dufour, and Varotto (2013) show that CDS spreads are affected by liquidity risk, and Doshi, Ericsson, Jacobs, and Turnbull (2013) show that bond market conditions affect CDS spreads, too. Thus, it is not implausible that a CDS spread is not a "pure" measure of credit risk.…”

Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads

“…Existing literature (Benkkert [1]; Breitenfellner and Wagner [2]; Cesare and Guazzarotti [3]; Doshi, Ericsson, Jacobs and Turnbull [4]; Ericsson, Jacobs and Oviedo [5]; Hull, Predescu and White [6]; Skinner, Timothy and Townend [7]) focused on the Corporate CDS or CDS Indices while exploring either its determinants, Valuation or the No -arbitrage relationship between Corporate CDS and bond market.…”