Credit Default Swaps and Sovereign Debt Markets
نویسندگان
چکیده
منابع مشابه
Sovereign Debt Renegotiation and Credit Default Swaps
A credit default swap (CDS) contract provides insurance against default. After a country defaults, the country and its lenders usually negotiate over the share of the defaulted debt to be repaid. This paper incorporates CDS contracts into a sovereign default model and demonstrates that the existence of a CDS market results in lower default probability, higher debt levels, and lower nancing cost...
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First passage models, where corporate assets undergo a random walk and default occurs if the assets fall below a threshold, provide an attractive framework for modeling the default process. Recently such models have been generalized to allow a fluctuating default threshold or equivalently a fluctuating total recovery fraction R. For a given company a particular type of debt has a recovery fract...
متن کاملTheory and evidence on the dynamic interactions between sovereign credit default swaps and currency options
Using sovereign CDS spreads and currency option data for Mexico and Brazil, we document that CDS spreads covary with both the currency option implied volatility and the slope of the implied volatility curve in moneyness. We propose a joint valuation framework, in which currency return variance and sovereign default intensity follow a bivariate diffusion with contemporaneous correlation. Estimat...
متن کاملLinkages across Sovereign Debt Markets
We develop a multicountry model in which default in one country triggers default in other countries. Countries are linked to one another by borrowing from and renegotiating with common lenders with concave payoffs. A foreign default increases incentives to default at home because it makes new borrowing more expensive and defaulting less costly. Foreign defaults tighten home bond prices because ...
متن کاملValuation of credit default swaps and swaptions
This paper presents a conceptual framework for valuation of single-name credit derivatives, and recuperates, in some cases generalizing, a few of known results in credit risk theory. Valuation is viewed with respect to a given state price density and relative to a general numeraire. Default probabilities and recoveries are considered as processes adapted to a subfiltration, following Jeanblanc ...
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ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2011
ISSN: 1556-5068
DOI: 10.2139/ssrn.1777423