A Simple Econometric Approach for Modeling Stress Event Intensities
Journal of Futures Markets, Vol. 35, No. 4, pp. 300-320, 2015
29 Pages Posted: 14 Nov 2015
Date Written: 2015
This paper introduces a simple, nonparametric way of inferring risk-neutral credit stress event intensities for idiosyncratic, sectoral, and global shocks contained in market credit spreads. We provide an econometric analysis of the implied latent stress event dynamics. A vector autoregressive regression model with exogenous variables finds that these intensities can be related to an observable stock market index, the market volatility, the volatility skew, and treasury yields.
Keywords: stress event intensity, systemic risk, credit derivative
JEL Classification: C51, G01, G28
Suggested Citation: Suggested Citation