Artikel

Spread Risk Premia in Corporate Credit Default Swap Markets

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.

Language
Englisch

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

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

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

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

Data provider

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Object type

  • Artikel

Associated

  • Entrop, Oliver
  • Schiemert, Richard
  • Wilkens, Marco
  • Duncker & Humblot

Time of origin

  • 2014

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