UID:
edoccha_9958118802402883
Format:
1 online resource (8 p.)
ISBN:
1-4623-3350-8
,
1-4527-8937-1
,
1-283-56422-X
,
1-4519-2043-1
,
9786613876676
Series Statement:
IMF Working Papers
Content:
In times of distress when a country loses access to markets, there is evidence that credit default swap (CDS) spreads are a leading indicator for sovereign risk than the EMBI+ sub-index for the country. However, it is not easy to discern the variables that determine the level of CDS spreads in Emerging Markets (EM); traders only quote the CDS spreads and not the inputs that are required to calculate such spreads. This note provides some evidence from Argentina and Brazil that reveals inconsistency between theory and practice in pricing CDS spreads in EM. This note suggests an alternate methodology that links CTD (cheapest-to-deliver) bonds to recovery values assumed in CDS contracts. Furthermore, special features that pertain to CDS contracts (repo specialness, short squeezes by central banks) may also magnify the financial distress of a sovereign.
Note:
Description based upon print version of record.
,
""Contents""; ""I. CORRELATION BETWEEN RECOVERY VALUE AND PROBABILITY OF DEFAULT""; ""II. AN ALTERNATE METHODOLOGY: THE CHEAPEST-TO-DELIVER BONDS FOR ARGENTINA AND BRAZIL""; ""III. IMPLICATION OF CDS SPREADS FOR DISTRESSED EMERGING MARKETS""; ""References""
,
English
Additional Edition:
ISBN 1-4518-7583-5
Language:
English