News-Specific Price Discovery in Credit Default Swap Markets

Why is price discovery in credit default swap markets news-specific?

We analyse daily lead-lag patterns in US equity and credit default swap (CDS) returns. We first document that equity returns robustly lead CDS returns. However, we find that the CDSlag is due to common (and not firm-specific) news and arises predominantly in response to positive (instead of negative) equity market news. We provide an explanation for this newsspecific price discovery based on de...

Why is Price Discovery in Credit Default Swap

Transparency in Credit Default Swap Markets

We provide an inventory of existing forms of transparency in CDS markets and discuss methods that may be used to increase transparency as well as their benefits and costs. In particular, we attempt to identify to whom such benefits and costs accrue (broker-dealers, end users, etc). We argue that increased market transparency has a cost, which must be weighed against its benefits in terms of mar...

Modelling the Price of a Credit Default Swap

This project describes credit default swap (CDS) and shows how to calculate a fair value for such a contract. The stochastic evaluation of both the interest rate and the default intensity are first studied independent by using one factor a Vasicek model for a bond and a one factor model for the probability of no default. After validations the combined effect of stochastic interest rates and def...

Informational Efficiency of Credit Default Swap and Stock Markets: the Impact of Credit Rating Announcements

Informational Efficiency of Credit Default Swap and Stock Markets: The Impact of Credit Rating Announcements This Paper analyses the response of stock and credit default swap (CDS) markets to rating announcements by the three major rating agencies during 2000-2. Applying event study methodology, we examine whether and how strongly these markets respond to rating announcements in terms of abnorm...