Essays on Foreign Exchange and Credit Risk

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Essays on Foreign Exchange and Credit Risk

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dc.contributor.author Nielsen, Andreas Bang
dc.date.accessioned 2018-07-03T12:34:05Z
dc.date.available 2018-07-03T12:34:05Z
dc.date.issued 2018-07-03
dc.identifier.isbn 9788793579989
dc.identifier.isbn 9788793579996
dc.identifier.issn 0906-6934
dc.identifier.uri http://hdl.handle.net/10398/9644
dc.description.abstract We investigate how currency denomination a ects the price of credit risky securities of the same issuer. We focus on eurozone sovereign quanto spreads, i.e., di erences in credit default swap (CDS) premiums denominated in U.S. dollar and Euro of the same reference entity. Quanto spreads of eurozone sovereigns reached unprecedented levels during the European debt crisis and have remained signi cant ever since. Quanto spreads do not simply re ect di erences in contractual terms linked to currency denomination, because CDS contracts trade under the same standardized terms independent of currency denomination, including credit events and recovery rates. In order to understand which factors drive quanto spreads, we propose a no-arbitrage model that shows in a simple and rigorous manner that quanto spreads arise without any market frictions through two risk channels. The rst channel, currency crash risk, re ects the risk of an adverse jump in domestic versus foreign currency triggered by default of the reference entity. Intuitively, currency crash risk causes the expected recovery payment to be relatively smaller on the domestic CDS compared to the foreign CDS, because the recovery payment on the domestic contract is received in the 'crashed' currency. en_US
dc.format.extent 209 en_US
dc.language eng en_US
dc.relation.ispartofseries PhD Series;26.2018
dc.title Essays on Foreign Exchange and Credit Risk en_US
dc.type phd en_US
dc.contributor.corporation Copenhagen Business School. CBS en_US
dc.contributor.department Institut for Finansiering en_US
dc.contributor.departmentshort FI en_US
dc.contributor.departmentuk Department of Finance en_US
dc.contributor.departmentukshort FI en_US
dc.publisher.city Frederiksberg en_US
dc.publisher.year 2018 en_US


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