The Capco Exit Probability Index (CEPIX): Methodology and History of an Index Expressing Euro Exit Likelihoods

Journal of Financial Transformation, No. 41, Forthcoming

6 Pages Posted: 26 Jun 2015

See all articles by Tomasz Borkowski

Tomasz Borkowski

Capco

Damiano Brigo

Imperial College London - Department of Mathematics

Michal Cieciorski

Capco

Date Written: June 24, 2015

Abstract

The Cepix (Capco Exit Probabilty Index) project aimed at providing the market with a quick summary index expressing the likelihood that each country in the Eurozone could leave the Euro. It was offered online for free from the end of 2012 to the end of 2014, for two years, at Capco dot com. The index follows a simple formula that combines information from sovereign bond yields, GDP and debt, and credit ratings. The main idea is to combine responsive but often too volatile market implied default probability information from bond prices with more stable but less responsive traditional credit ratings information. The weights in the combination are decided based on macroeconomic data, namely GDP and Debt. The index history on some key moments and entities helps illustrating the interesting features of the index methodology.

Keywords: Sovereign Default, Eurozone, Euro Exit, Exit Probability, CEPIX Index, Market Implied Default Probability, Hazard Rate.

JEL Classification: G32, G33, H81

Suggested Citation

Borkowski, Tomasz and Brigo, Damiano and Cieciorski, Michal, The Capco Exit Probability Index (CEPIX): Methodology and History of an Index Expressing Euro Exit Likelihoods (June 24, 2015). Journal of Financial Transformation, No. 41, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2622631 or http://dx.doi.org/10.2139/ssrn.2622631

Tomasz Borkowski

Capco ( email )

120 Broadway, 15th Floor
New York, NY 10271
United States

Damiano Brigo (Contact Author)

Imperial College London - Department of Mathematics ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://www.imperial.ac.uk/people/damiano.brigo

Michal Cieciorski

Capco ( email )

120 Broadway, 15th Floor
New York, NY 10271
United States

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