An Analysis of CDS Market Liquidity by the Hawkes Process

34 Pages Posted: 15 Jan 2013 Last revised: 26 Mar 2013

Date Written: January 14, 2013

Abstract

We study the credit default swap (CDS) markets in the U.S. and Japan, focusing on bid-ask spreads which are closely related to the liquidity of the markets. Since bid-ask spreads dramatically surged during the financial crisis (2008-2009) and the market became very illiquid, it is crucially important to investigate how bid-ask spreads fluctuate. In this paper, not only do we make dynamic analysis of the bid-ask spreads in both countries but propose a model to predict bid-ask spreads via the self-exciting intensity process (the Hawkes process).

Keywords: CDS contract, liquidity, bid-ask spread, the Hawkes process, self-exciting processes, financial crisis, credit risk

JEL Classification: G10, G17, G21

Suggested Citation

Egami, Masahiko and Kato, Yasuyuki and Sawaki, Tomochika, An Analysis of CDS Market Liquidity by the Hawkes Process (January 14, 2013). Available at SSRN: https://ssrn.com/abstract=2200307 or http://dx.doi.org/10.2139/ssrn.2200307

Masahiko Egami (Contact Author)

Kyoto University ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Yasuyuki Kato

Kyoto University ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Tomochika Sawaki

Independent ( email )

No Address Available

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