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Book Cover
Author Zanforlin, L.

Title Market Signals and the Cost of Credit Risk Protection
Published Washington : International Monetary Fund, 2014
Online access available from:
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Description 1 online resource (33 pages)
Series IMF Working Papers ; v. Working Paper No. 14/239
IMF Working Papers
Contents Cover; Contents; I. Introduction; II. Brief review of CDS contracts and how they are priced; A. Pricing CDS contracts; B. Evaluating Default Probabilities: Reduced-Form Models; III. Data and Empirical Methodology; Figures; 1. Recovery Rates at CDS Settlement Auctions; 2. CDS Spread and Recovery Rate; A. Credit Risk Protection Payments and Implied Default Probabilities; 3. Implied Default Probabilities One-year Ahead; 4. Implied Default Probabilities Estimated Using Average and Actual Recoveries; B. Explaining Auction Outcomes; Tables; 1. Determinants of Excess Spreads 1 -- Baseline Regressions
2. Determinants of Excess Spreads 2 -- Additional Controls3. Estimations Using Five-year Ahead Implied Probabilities of Default; 4. Estimations Using Reduced Form Probability Structures; C. Discussion of results; Auction behavior; IV. Conclusions; References; Appendices; I. Definitions of Variables; II. Summary Statistics and Selected Correlations
Summary We study the link between the probability of default implied by Credit Default Swaps (CDS) spreads and the final prices of the defaulted bonds as established at the CDS settlement auctions. We observe that the post-default recovery rates at the observed spreads imply markets were often "surprised" by the credit event. We find that the prices of the bonds that are deliverable at the auctions imply probabilities of default that are systematically different than the default probabilities estimated prior to the event of default using standard methodologies. We discuss the implications for CDS pric
Notes Print version record
Form Electronic book
Author Kanazawa, Nobuyuki.
ISBN 1498349064