Systematic and idiosyncratic default risk in synthetic credit markets


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Systematic and idiosyncratic default risk in synthetic credit markets

Vis færre oplysninger Feldhütter, Peter Stenbo Nielsen, Mads 2015-01-26T10:24:53Z 2015-01-26T10:24:53Z 2015-01-26
dc.description.abstract We present a new estimation approach that allows us to extract from spreads in synthetic credit markets the contribution of systematic and idiosyncratic default risk to total default risk. Using an extensive data set of 90,600 CDS and CDO tranche spreads on the North American Investment Grade CDX index we conduct an empirical analysis of an intensity-based model for correlated defaults. Our results show that systematic default risk is an explosive process with low volatility, while idiosyncratic default risk is more volatile but less explosive. Also, we nd that the model is able to capture both the level and time series dynamics of CDO tranche spreads. en_US
dc.format.extent 58 en_US
dc.language eng en_US
dc.subject.other Credit risk en_US
dc.subject.other Correlated defaults en_US
dc.subject.other CDO pricing en_US
dc.subject.other Intensity-based model en_US
dc.title Systematic and idiosyncratic default risk in synthetic credit markets en_US
dc.type art 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.description.notes This is a pre-copyedited, author-produced PDF of an article accepted for publication in Journal of Financial Econometrics following peer review. The version of record Peter Feldhütter and Mads Stenbo Nielsen "Systematic and Idiosyncratic Default Risk in Synthetic Credit Markets" Journal of Financial Econometrics (Spring 2012) 10 (2): 292-324 is available online at doi: en_US
dc.publisher.year 2012 en_US

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