Common Factors in Credit Defaults Swap Markets

19 Pages Posted: 2 Mar 2016

See all articles by Cathy Chen

Cathy Chen

Chung Hua University

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin; Charles University; National Yang Ming Chiao Tung University; Asian Competitiveness Institute

Date Written: April 20, 2015

Abstract

We examine what are the common factors that determine systematic credit risk, and estimate and interpret these factors. We also compare the contributions of common factors in explaining the changes of credit default swap spreads during the pre-crisis, the crisis and the post-crisis period; there is evidence to suggest that the eigenstructures across these three sub-periods are distinct. Furthermore, we examine whether the observable economic variables are in fact the underlying latent factors and analyze the predictability in the factors that capture the time-variation of credit default swap spreads.

Keywords: redit default swaps, Common factors, Credit risk, Factor model

Suggested Citation

Chen, Cathy and Härdle, Wolfgang Karl, Common Factors in Credit Defaults Swap Markets (April 20, 2015). Computational Statistics, Vol. 30, No. 3, 2015, Available at SSRN: https://ssrn.com/abstract=2740328

Cathy Chen (Contact Author)

Chung Hua University ( email )

Hsinchu, Hsinchu
Taiwan

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Charles University ( email )

Celetná 13
Dept Math Physics
Praha 1, 116 36
Czech Republic

National Yang Ming Chiao Tung University ( email )

No. 1001, Daxue Rd. East Dist.
Hsinchu City 300093
Taiwan

Asian Competitiveness Institute ( email )

Singapore

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