scholarly journals A Simulation Model for Pricing the Spread in a Credit Default Swap: Application and Analysis#

2018 ◽  
Vol 9 (2) ◽  
pp. 9
Author(s):  
Madhvi Sethi ◽  
Parthiv Thakkar ◽  
Zahid M. Jamal
Keyword(s):  
Simulation Model ◽  
Credit Ratings ◽  
Credit Default Swap ◽  
Pricing Model ◽  
Underlying Asset ◽  
True Value ◽  
Credit Default ◽  
Default Swap ◽  
Credit Event

This paper explores pricing the contract of a Credit Default Swap (CDS) using a simulation model. It attempts to determine the spread value which is a periodic payment to be made by the protection buyer. It also helps in identifying the factors that should be taken into account to determine the true value of the payment which would hedge the risk in case of a credit event by the issuer of the underlying asset. The paper uses the Hull and White pricing model for creating the simulation model. This model is then applied to analyse CDSs of countries having different credit ratings. The paper using the model analyses the actual and estimated spread of the different countries and discusses the possible reasons for the same.<ins cite="mailto:Windows%20User" datetime="2018-01-07T00:55"> </ins>

The Information in Credit Default Swap Volume

2016 ◽  
Vol 24 (3) ◽  
pp. 479-504
Author(s):  
Dongyoup Lee
Keyword(s):  
Stock Prices ◽  
Credit Default Swap ◽  
Current Increase ◽  
Market Participants ◽  
Credit Default ◽  
Natural Measure ◽  
Outstanding Debt ◽  
Default Swap ◽  
Investment Grade ◽  
Credit Event

This article examines the informational content of credit default swap (CDS) net notional for future stock and CDS prices. Using the information on CDS contracts registered in DTCC, a clearinghouse, I construct CDS-to-debt ratios from net notional, that is, the sum of net positive positions of all market participants, and total outstanding debt issued by the reference entity. Unlike the ratio using the sum of all outstanding CDS contracts, this ratio directly indicates how much of debt is insured with CDS and therefore, is a natural measure of investors’ concern on a credit event of the reference entity. Empirically, I find crosssectional evidence that the current increase in CDS-to-debt ratios can predict a decrease in stock prices and an increase in CDS premia of the reference firms in the next week. Greater predictability for firms with investment grade credit ratings or low CDS-to-debt ratios suggests that investors pay more attention to firms in good credit conditions than those regarded as junk or already insured considerably with CDS.

scholarly journals CDS Momentum: Slow-Moving Credit Ratings and Cross-Market Spillovers

2021 ◽  
Author(s):  
Jongsub Lee ◽  
Andy Naranjo ◽  
Stace Sirmans
Keyword(s):  
Credit Rating ◽  
Credit Ratings ◽  
Credit Default Swap ◽  
Momentum Strategies ◽  
Information Efficiency ◽  
Market Effects ◽  
Credit Default ◽  
Slow Moving ◽  
Default Swap ◽  
Rating Changes

Abstract This paper highlights the adverse consequences of sluggish credit rating updates in creating information efficiency distortions and investment anomalies. We first document significant credit default swap (CDS) return momentum yielding 7.1% per year. We further show that cross-market momentum strategies based on information in past CDS performance generates an alpha of 10.3% per year in stocks and 7.3% per year in bonds. These CDS momentum and cross-market effects are stronger among more liquid, informationally rich CDS contracts whose CDS spreads move in anticipation of important, yet slow-moving, credit rating changes.

‘Extended black’ sovereign credit default swap pricing model

2010 ◽  
Vol 17 (12) ◽  
pp. 1133-1137
Author(s):  
Marco Realdon ◽  
Cheng Qin Shi
Keyword(s):  
Credit Default Swap ◽  
Pricing Model ◽  
Sovereign Credit ◽  
Credit Default ◽  
Default Swap

How did the Greek credit event impact the credit default swap market?

2018 ◽  
Vol 35 ◽  
pp. 136-158 ◽  
Author(s):  
Grzegorz Hałaj ◽  
Tuomas A. Peltonen ◽  
Martin Scheicher
Keyword(s):  
Credit Default Swap ◽  
Credit Default ◽  
Default Swap ◽  
Credit Event

High Yield Bonds

2019 ◽  
pp. 599-620
Author(s):  
Byron C. Barnes ◽  
Tony Calenda ◽  
Elvis Rodriguez
Keyword(s):  
Interest Rates ◽  
Economic Activity ◽  
Default Risk ◽  
Credit Default Swap ◽  
High Yield ◽  
Credit Default ◽  
Key Drivers ◽  
Default Swap ◽  
Investment Grade ◽  
Credit Event

High yield bonds (HYBs) have become an integral part of the funding and investment landscape. HYBs are bonds rated below investment grade, indicating a potentially greater default risk and concomitant return. Although often associated with leveraged buyouts (LBOs), corporations also use HYBs to finance general corporate needs. The key drivers of HYB issuance include general economic activity, the number and size of transactions requiring financing, interest rates, and the availability of substitute financial products such as leveraged loans. Leveraged loans are another source of financing for issuers with a similar profile as HYB issuers. A key difference between HYBs and leveraged loans is that the covenants associated with a leveraged loan are typically more lender friendly. Similar to investment grade bonds, investors can purchase insurance to hedge a long HYB position against a credit event by using a credit default swap.

The Effect of Credit Ratings on Credit Default Swap Spreads and Credit Spreads

2005 ◽  
Vol 15 (3) ◽  
pp. 16-33 ◽  
Author(s):  
Kenneth N. Daniels ◽  
Malene Shin Jensen
Keyword(s):  
Credit Ratings ◽  
Credit Default Swap ◽  
Credit Spreads ◽  
Credit Default ◽  
Default Swap ◽  
Swap Spreads

Le marché des Credit Default Swap (CDS)

2009 ◽  
Vol 189 (3) ◽  
pp. 133-140
Author(s):  
Antoine Bouveret
Keyword(s):  
Credit Default Swap ◽  
Credit Default ◽  
Default Swap
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