Franklin

The Pricing of Credit Default Swaps During Distress [electronic resource] Singh, Manmohan.

Author/Creator:
Singh, Manmohan.
Publication:
Washington, D.C. : International Monetary Fund, 2006.
Series:
IMF eLibrary
IMF Working Papers; Working Paper No. 06/254.
IMF Working Papers; Working Paper No. 06/254
Format/Description:
Government document
Book
1 online resource (23 p.)
Local subjects:
Arbitrage.
Asset Pricing.
Bond.
Bond instruments.
Bond issues.
Bond market.
Bond markets.
Bond price.
Bond prices.
Bond spread.
Bond spreads.
Bond valuation.
Bonds.
Cash bond market.
Cash bonds.
Cash flow.
Cash flows.
Common bond.
Corporate bond.
Corporate bonds.
Credit risk.
Derivative.
Financial markets.
Hedge.
International capital.
International capital markets.
International Financial Markets.
International Lending and Debt Problems.
Net present value.
Option markets.
Present value.
Prices.
Risk aversion.
Risk premium.
Sovereign bond.
Sovereign bond market.
Sovereign bond markets.
Sovereign bonds.
Underinsured.
Brazil.
Summary:
Credit default swaps (CDS) provide the buyer with insurance against certain types of credit events by entitling him to exchange any of the bonds permitted as deliverable against their par value. Unlike bonds, whose risk spreads are assumed to be the product of default risk and loss rate, CDS are par instruments, and their spreads reflect the partial recovery of the delivered bond''s face value. This paper addresses the implications of the difference between bond and CDS spreads and shows the extent to which the recovery assumption matters for determining CDS spreads. A no-arbitrage argument is applied to extract recovery rates from CDS and bond markets, using data from Brazil''s distress in 2002-03. Results are related to the observation that preemptive restructurings are now more common than straight defaults in sovereign bond markets and that this leads to a decoupling of CDS and bond spreads.
Notes:
Description based on print version record.
Contributor:
Andritzky, Jochen R.
Singh, Manmohan.
Other format:
Print Version:
ISBN:
1451865147:
9781451865141
ISSN:
1018-5941
Publisher Number:
10.5089/9781451865141.001
Access Restriction:
Restricted for use by site license.
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