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Interconnectedness in the CDS Market

35 Pages Posted: 15 May 2014 Last revised: 26 Feb 2016

Mila Getmansky

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance

Giulio Girardi

Securities and Exchange Commission

Craig M. Lewis

Vanderbilt University - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 2016

Abstract

Concentrated risks in markets for credit default swaps (CDS) are widely considered to have significantly contributed to the recent financial crisis. In this paper we study the structure of the CDS market using explicit connections based on the total number of CDS transactions, notional value of CDS transactions, net outstanding positions, and network diagrams. The main objective is to provide statistics that characterize the CDS market, the degree of counterparty concentration, the size of different contracts as well as underlying contractual features, and a preliminary analysis of interconnectivity. Our new approach informs the discussion of the structure and resulting fragility or stability of the CDS market and studies potential contagion among its participants. Our findings are of practical importance because, even after central clearing becomes mandatory, counterparty risk will remain a relevant systemic consideration due to the long-term nature of CDS contracts.

Keywords: CDS, dealers, network

JEL Classification: G1, G2

Suggested Citation

Getmansky, Mila and Girardi, Giulio and Lewis, Craig M., Interconnectedness in the CDS Market (February 26, 2016). Financial Analysts Journal, Forthcoming; Vanderbilt Owen Graduate School of Management Research Paper No. 2436634&. Available at SSRN: https://ssrn.com/abstract=2436634 or http://dx.doi.org/10.2139/ssrn.2436634

Mila Getmansky Sherman (Contact Author)

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance ( email )

Amherst, MA 01003-4910
United States

Giulio Girardi

Securities and Exchange Commission ( email )

Washington, DC
United States

Craig M. Lewis

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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