Systematic and idiosyncratic default risk in synthetic credit markets

Feldhütter, P and Nielsen, M S (2012) Systematic and idiosyncratic default risk in synthetic credit markets. Journal of Financial Econometrics, 10 (2). pp. 292-324. ISSN 1479-8409

Abstract

We present a new estimation approach that allows us to extract from spreads in synthetic credit markets the contribution of systematic and idiosyncratic default risk to total default risk. Using an extensive dataset of 90,600 credit default swap and collateralized debt obligation (CDO) tranche spreads on the North American Investment Grade CDX index, we conduct an empirical analysis of an intensity-based model for correlated defaults. Our results show that systematic default risk is an explosive process with low volatility, while idiosyncratic default risk is more volatile but less explosive. Also, we find that the model is able to capture both the level and time series dynamics of CDO tranche spreads.

More Details

Item Type: Article
Subject Areas: Finance
Date Deposited: 17 May 2016 11:55
Last Modified: 05 Nov 2024 02:27
URI: https://lbsresearch.london.edu/id/eprint/357
More

Export and Share


Download

Full text not available from this repository.

Statistics

Altmetrics
View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item