The Role of Asian Credit Default Swap Index in Portfolio Risk Management

This paper evaluates the associations between credit default swap (CDS) spreads and risk disclosure characteristics, especially the expected qualitative and the expected quantitative impacts of risks on companies' future performance and information on risk management. We find that CDS investors can benefit from information on expected risk impacts and from information on risk management, which is important for the current discussion of the Securities and Exchange Commission (SEC) on risk disclosure regulation. However, for companies, the disclosure of such information can be either beneficial or costly, depending on the initial risk perception of CDS investors prior to the publication of risk disclosures and on the disclosed risk factors. Furthermore, we expand the literature by automatically measuring the mentioned risk disclosure characteristics using dictionary-based approaches.

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Credit Default Swaps in the External Public Debt Management

THE PROBLEMS OF ECONOMY ◽

10.32983/2222-0712-2020-4-326-333 ◽

2020 ◽

Vol 4 (46) ◽

pp. 326-333

Author(s):

A. Y. Lupenko ◽

Keyword(s):

Risk Management ◽

Public Debt ◽

Management System ◽

Credit Default Swap ◽

Credit Default Swaps ◽

Debt Management ◽

Risk Management System ◽

Credit Default ◽

Public Debt Management ◽

Default Swap

The article aims at systematizing the theoretical and methodological foundations of using credit default swaps in the external public debt management. Theoretical principles of using credit default swaps in the external public debt management are studied. The advantages and disadvantages of credit default swaps as derivative financial instruments are generalized. It is shown that the main disadvantages of credit default swaps are their speculative character and dependence on international rating agencies, as well as lack of proper regulation in the synthetic securitization of debt-based assets. The mechanism of credit default swap functioning in the risk management system in external state borrowings is conceptualized. The factors influencing the value of the credit default swap in the risk management system in external government borrowing are identified. It is shown that the main factors are the sovereign credit rating, the maturity of debt securities, liquidity and yield of external government bonds, market demand and supply of debt securities and default swaps. The dynamics of the value of credit default swaps on Ukraine’s debt securities is analyzed. The relationship between the swap value and geopolitical factors in the formation of the international investment position of the state is shown. In order to increase the efficiency of credit default swaps in external public debt management and minimize the interest rate risks of external government borrowings, it is suggested to amend norms and regulations, providing for the essence of default swap, the composition of the parties, accounting and value formation peculiarities.

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Credit Default Swaps: A Primer and Some Recent Trends

Annual Review of Financial Economics ◽

10.1146/annurev-financial-012820-013740 ◽

2020 ◽

Vol 12 (1) ◽

pp. 177-192

Author(s):

David Lando

Keyword(s):

Sovereign Debt ◽

Debt Crisis ◽

Credit Default Swap ◽

Sovereign Debt Crisis ◽

European Sovereign Debt Crisis ◽

Credit Default ◽

Recent Trends ◽

Default Swap ◽

Trading Volumes

The credit default swap (CDS) remains an important class of derivatives contract despite the declining activity in the single-name corporate market. I provide a quick introduction to the contracts, the pricing formula used to interpret the market premiums, the development in trading volumes, and some key insights that are important for understanding its role in markets. I then take a closer look at the CDS-bond basis and the role of trading and regulatory frictions. Finally, the European sovereign debt crisis brought back in focus the notion of a quanto spread, which I explain.

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