Economic and Financial Determinants of Credit Risk Premiums in the Sovereign CDS Market*

2017 ◽  
Vol 7 (1) ◽  
pp. 43-80 ◽  
Author(s):  
Hitesh Doshi ◽  
Kris Jacobs ◽  
Virgilio Zurita
Keyword(s):  
Credit Risk ◽  
Risk Premiums

scholarly journals The Effect of Systematic Default Risk on Credit Risk Premiums

2019 ◽  
Vol 11 (21) ◽  
pp. 6039
Author(s):  
Kim
Keyword(s):  
Credit Risk ◽  
Cross Section ◽  
Default Risk ◽  
Credit Default Swap ◽  
Credit Market ◽  
Testable Hypothesis ◽  
Risk Premiums ◽  
Positive Effects ◽  
Market Factors ◽  
Default Risks

This study examines whether systematic default risks affect a cross section of credit risk premiums. Using a structural framework, I derive a theoretical cross-sectional relationship, develop a testable hypothesis, and provide a method to estimate the systematic default risk. The empirical results of US corporate credit default swap data are consistent with my hypothesis. The findings show that, while credit market factors have positive effects on a cross section of credit risk premiums, stock market factors have a negative impact. Regression analyses reveal that the market’s average default probability and the value factor have a significant effect on the credit risk premium. In addition, credit market factors are more influential than equity market factors as systematic default risk factors. The results suggest that systematic and idiosyncratic default risks are priced differently in a cross section of credit risk premiums.

EFFECT OF ASSET VALUE CORRELATION ON CREDIT-LINKED NOTE VALUES

2002 ◽  
Vol 05 (05) ◽  
pp. 455-478 ◽  
Author(s):  
C. H. HUI ◽  
C. F. LO
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Structural Model ◽  
Credit Spreads ◽  
Model Parameters ◽  
Risk Premiums ◽  
Closed Form Solutions ◽  
Asset Values ◽  
Dependent Model ◽  
Payoff Condition

This paper develops a simple model to study the credit risk premiums of credit-linked notes using the structural model. Closed-form solutions of credit risk premiums of the credit-linked notes derived from the model as functions of firm values and the short-term interest rate, with time-dependent model parameters governing the dynamics of the firm values and interest rate. The numerical results show that the credit spreads of a credit-linked note increase non-linearly with the decrease in the correlation between the asset values of the note issuer and the reference obligor when the final payoff condition depends on the asset values of the note issuer and the reference obligor. When the final payoff condition depends on the recovery rate of the note issuer upon default, the credit spreads could increase with the correlation. In addition, the term structures of model parameters and the correlations involving interest rate are clearly the important factors in determining the credit spreads of the notes.

scholarly journals Desirable Portfolios in Fixed Income Markets: Application to Credit Risk Premiums

Risks ◽  
2018 ◽  
Vol 6 (1) ◽  
pp. 23 ◽  
Author(s):  
José Garrido ◽  
Ramin Okhrati
Keyword(s):  
Credit Risk ◽  
Fixed Income ◽  
Risk Premiums ◽  
Fixed Income Markets

scholarly journals Affine Modeling of Credit Risk, Pricing of Credit Events, and Contagion

2020 ◽  
Author(s):  
Alain Monfort ◽  
Fulvio Pegoraro ◽  
Jean-Paul Renne ◽  
Guillaume Roussellet
Keyword(s):  
Credit Risk ◽  
Jump Condition ◽  
Risk Premiums ◽  
Contagion Effects ◽  
Credit Default ◽  
Joint Dynamics ◽  
Sovereign Credit Risk ◽  
Risk Pricing ◽  
Credit Risk Pricing ◽  
Credit Event

We propose a discrete-time affine pricing model that simultaneously allows for (i) the presence of systemic entities by departing from the no-jump condition on the factors’ conditional distribution, (ii) contagion effects, and (iii) the pricing of credit events. Our affine framework delivers explicit pricing formulas for default-sensitive securities such as bonds and credit default swaps (CDSs). We estimate a euro-area multicountry version of the model and address economic questions related to the pricing of sovereign credit risk. We find that both frailty (common factors) and contagion phenomena are important to account for the joint dynamics of credit spreads. Our results also provide evidence of credit-event pricing, which is at the source of substantial credit risk premiums, even for short maturities. Finally, we extract measures of depreciation-at-default from CDSs denominated in different currencies. This paper was accepted by Kay Giesecke, finance.

scholarly journals The Influence of US Dollar Funding Conditions on Asian Financial Markets

2021 ◽  
Author(s):  
Junkyu Lee ◽  
Peter Rosenkranz ◽  
Arief Ramayandi ◽  
Hoang Pham
Keyword(s):  
United States ◽  
Credit Risk ◽  
Financial Markets ◽  
Exchange Rates ◽  
Risk Premiums ◽  
Sovereign Credit ◽  
Asian Economies ◽  
Sovereign Credit Risk ◽  
Us Dollar

Amid high reliance on United States (US) dollar-denominated funding, this paper finds changes in exchange rates affect sovereign credit risk premiums in selected emerging Asian economies.

Validation of an integrity-based selection measure for credit risk potential

2009 ◽  
Author(s):  
Kelly D. Dages ◽  
John W. Jones ◽  
Bailey Klinger
Keyword(s):  
Credit Risk ◽  
Risk Potential
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