The Impact of Stock Returns Volatility on Credit Default Swap Rates: A Copula Study

Abid, Fathi; Naifar, Nader

doi:10.2139/ssrn.726726

Cited by 4 publications

(4 citation statements)

References 37 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This is in line with the results of Ericsson et al (2005) based on credit default swap spreads. However, Abid and Naifar (2005) find a significant negative relationship between credit default swap spreads and the slope of the yield curve. Meanwhile, Avramov et al (2007) find the slope calculated as the 30-year interest rate minus the 2-year interest rate to be significantly positively related, and the slope calculated as 5-year interest rate minus 2-year interest rate to be significantly negatively related with changes in credit spreads based on constant maturity yield curves.…”

Section: Credit Ratingmentioning

confidence: 78%

“…A negative relationship between the level of the short-term interest rate and the credit spread has been documented for several datasets; see for example Longstaff and Schwartz (1995 a, b) or Duffee (1998). Similarly, Abid and Naifar (2005) find the use of the risk-free interest rate as an explanatory variable increases the total adjusted 2 R and the variable risk-free interest rate is negatively correlated to the levels of credit default swap spreads. That is, an increase in the short-term interest rate leads to a reduction in the spreads.…”

Section: Credit Ratingmentioning

confidence: 89%

See 1 more Smart Citation

Component Structure of Credit Default Swap Spreads and Their Determinants

Bhar

Colwell²,

Wang³

2018

ijafr

View full text Add to dashboard Cite

In this paper, we decompose credit default swap (CDS) spreads into a transitory component and a persistent component and test how these components are affected by the theoretical explanatory variables. We find significant but differing impacts of these explanatory variables on the extracted components. For example, equity volatility seems to have a larger influence on the transitory component, suggesting that its effect may be mostly short-lived, while our proxy for illiquidity has a greater impact on the persistent component indicating its more enduring effect. Also, the slope of the yield curve has impacts with opposite signs on the two components and so our analysis thus helps address the conflicting results reported in earlier studies without such a component framework. These results indicate that a two-factor formulation may be needed to model CDS options.

show abstract

Section: Credit Ratingmentioning

confidence: 78%

Section: Credit Ratingmentioning

confidence: 89%

Component Structure of Credit Default Swap Spreads and Their Determinants

Bhar

Colwell²,

Wang³

2018

ijafr

View full text Add to dashboard Cite

show abstract

“…First, it extends the bulk of literature that investigates the determinants of CDS spreads. That literature includes Ericsson et al (2009); Benkert (2004); Bharath and Shumway (2008); Cossin and Hricko (2001); Galil et al (2014);Zhang et al (2009); Abid and Naifar (2005); Fabozzi et al (2007); Berndt and Obreja (2010); Bai and Wu (2014); Breitenfellner and Wagner (2012) and Cao et al (2010), among others, who study the explanatory power of structural models-related variables on CDS rates and CDS rate changes.…”

Section: Related Literaturementioning

confidence: 99%

Earnings surprises and the response of CDS markets

Silva

2016

SEF

View full text Add to dashboard Cite

Purpose This paper aims to investigate the informational content of earnings surprises and accounting information in credit default swap (CDS) markets. Design/methodology/approach This paper analyzes a sample of 444 US firms and 6,907 earnings announcements. By means of parametric and non-parametric event study analysis, the paper assesses the informational value and the timeliness in the assimilation of earnings surprises by CDS rates. Findings This paper shows that earnings surprises contain material information and that CDS rates are affected by the disclosure of obligors’ financial statements. There is also supporting evidence that positive and negative surprises induce asymmetric reactions on CDS rates, especially after accounting for the credit risk of the obligor and the liquidity of the CDS contract. Finally, and perhaps the most interesting conclusion of the study, there is evidence that earnings disclosed during unstable periods lack informational value, in opposition to normal periods. Originality/value As compared with similar studies, this paper presents three novel contributions. The first concerns the use of non-parametric analysis in parallel with parametric tests to achieve robust conclusions. The second novel contribution resides in assessing whether the liquidity of the CDS contracts affects the information value of earnings surprises or the timeliness at which the information is assimilated into CDS rates. Finally, this paper also contributes to improve our understanding on the relationship between the business cycle and the informativeness of accounting information.

show abstract

“…Hull and White (2001) [3] put forward factor models which the correlation structure is given by the coefficients in front of common factors. Abid and Naifar (2005) [4] use Gaussian copula and t copula function to describe the correlation between underlying assets and obtain the price of BDS and CDO. Hull and White (2006) [5] develop a new kind of copula, namely implied copula, whose parameters are completely estimated from historical data, to perfectly model the departed dependence structure between firms.…”

Section: Literature Reviewmentioning

confidence: 99%

Research on BDS pricing with variable structure of default correlation

Xue-ping

2013

2013 International Conference on Management Science and Engineering 20th Annual Conference Proceedings

View full text Add to dashboard Cite

The pricing of CDS has become a hot issue after the U.S. subprime mortgage crisis erupted. For BDS with different reference assets, it is important to define the default correlation between the assets. Using copula functions to describe the dependent structure between the assets has some advantages and becomes popular recently. In the paper, we develop a BDS pricing model using the copula function with variable structure to describe default correlation.Considering the influence of economy situation change on BDS pricing, we introduce the Markovian regime shift to default density and default correlation change along with economy situation and make comparison by Monte Carlo simulation. The study finds that the BDS price obtained from the model with variable structure is located between BDS prices from the model without variable structure under different initial conditions. As default density is directly proportional to BDS price and default correlation is inversely proportional to BDS price, the influence of economy situation change on BDS pricing results from the comprehensive effect of default density and default correlation. Generally speaking, the influence of default density will exceed that of default correlation, thus, the BDS price in times of prosperity is low than that in times of depression.

show abstract

The Impact of Stock Returns Volatility on Credit Default Swap Rates: A Copula Study

Cited by 4 publications

References 37 publications

Component Structure of Credit Default Swap Spreads and Their Determinants

Component Structure of Credit Default Swap Spreads and Their Determinants

Earnings surprises and the response of CDS markets

Research on BDS pricing with variable structure of default correlation

Contact Info

Product

Resources

About