Spread Risk Premia in Corporate Credit Default Swap Markets

Artikel

The spread risk premium component of credit default swap (CDS) spreads represents a compensation demanded by protection sellers for future changes in CDS spreads caused by unpredictable fluctuations in the reference entity"s risk-neutral default intensity. This paper defines and estimates a measure of the spread risk premium component in CDS spreads of a sample of European investment-grade firms by using a stochastic intensity credit model. Our results show that, on average, investors demand a positive premium for such mark-to-market risks. After controlling for CDS market conditions, like liquidity and supply/demand effects, a panel data analysis of the estimated spread risk premia reveals a positive impact of event risk captured by the overall stock market volatility and a negative impact of investors" appetite for exposure to credit markets as reflected by the overall CDS market.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Credit and Capital Markets – Kredit und Kapital ; ISSN: 2199-1235 ; Volume: 47 ; Year: 2014 ; Issue: 4 ; Pages: 571-610

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Contingent Pricing; Futures Pricing; option pricing ; International Financial Markets
• Subject: credit default swap ; spread risk premium ; mark-to-market risk premium ; stochastic intensity model

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Entrop, Oliver ; Schiemert, Richard ; Wilkens, Marco
• Event: Veröffentlichung
• (who): Duncker & Humblot
• (where): Berlin
• (when): 2014

Further information

• DOI: doi:10.3790/ccm.47.4.571
• Last update: 10.03.2025, 11:44 AM CET