UID:
almafu_9958110153702883
Format:
1 online resource (19 p.)
ISBN:
9781475535891
,
1475535899
,
9781475564099
,
1475564090
Series Statement:
IMF Working Papers
Content:
This paper looks at some technical issues when using CDS data, and if these are incorporated, the analysis or regression results are likely to benefit. The paper endorses the use of stochastic recovery in CDS models when estimating probability of default (PD) and suggests that stochastic recovery may be a better harbinger of distress signals than fixed recovery. Similarly, PDs derived from CDS data are risk-neutral and may need to be adjusted when extrapolating to real world balance sheet and empirical data (e.g. estimating banks losses, etc). Another technical issue pertains to regressions trying to explain CDS spreads of sovereigns in peripheral Europe - the model specification should be cognizant of the under-collateralization aspects in the overall OTC derivatives market. One of the biggest drivers of CDS spreads in the region has been the CVA teams of the large banks that hedge their exposure stemming from derivative receivables due to non-posting of collateral by many sovereigns (and related entities).
Note:
Description based upon print version of record.
,
Cover; Contents; I. Introduction; II. Stochastic versus fixed recovery value; Figure; 1. Stochastic Versus Fixed Recovery Value: Greece; 2. Stochastic Versus Fixed Recovery Value: Portugal; 3. Stochastic Versus Fixed Recovery Value: Lehman Brothers; 4. Stochastic Versus Fixed Recovery Value: Spain; 5. Stochastic Versus Fixed Recovery Value: Italy; III. Real-world versus Risk-neutral probabilities; 6. Scatterplot of PDs Greece; 7. Scatterplot of PDs Portugal; 8. Scatterplot of PDs Spain; 9. Scatterplot of PDs Italy; 10. Risk Adjustment Factors: CDS/EDF*(1-R)
,
IV. CDS spreads and Under-Collateralization in the OTC Derivatives Market11. Total SMP purchases and change in Basis for a peripheral sovereign; 12. 5 Years CDS Spread of a European Peripheral; V. Conclusion; Annex I. Residual Derivative Receivables at a Large Bank's Financial Statement; Annex II. 5 Year CDS Spreads and Euro Interest Rate Swap Spread; References
,
English
Additional Edition:
ISBN 9781475550979
Additional Edition:
ISBN 1475550979
Additional Edition:
ISBN 9781475502299
Additional Edition:
ISBN 147550229X
Language:
English
