Sovereign Risk and the Pricing of Corporate Credit Default Swaps

28 Pages Posted: 15 Jun 2016

See all articles by Matthias Haerri

Matthias Haerri

University of Applied Sciences Northwestern Switzerland (CH)

Stefan Morkoetter

University of St. Gallen - School of Finance

Simone Westerfeld

University of St. Gallen (HSG), School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 20, 2015

Abstract

Based on an empirical analysis of European corporations, we investigate the impact of sovereign risk on the pricing of corporate credit risk. In our paper, we show that sovereign credit default swaps (CDSs) are positively correlated with corresponding corporate CDS spreads and are a significant factor in corporate CDS pricing models. We also find that this impact increases throughout the sovereign debt crisis of 2010-11, and it is more distinctive for eurozone countries that were more exposed to the sovereign debt crisis than others. We further observe that this effect is particularly pronounced for corporations with a high dependency on their domestic market.

Keywords: credit default swaps, pricing, sovereign risk, debt crisis, corporate credit risk

Suggested Citation

Haerri, Matthias and Morkoetter, Stefan and Westerfeld, Simone, Sovereign Risk and the Pricing of Corporate Credit Default Swaps (March 20, 2015). Journal of Credit Risk, Vol. 11, No. 1, 2015. Available at SSRN: https://ssrn.com/abstract=2795516

Matthias Haerri

University of Applied Sciences Northwestern Switzerland (CH) ( email )

Riggenbachstrasse 16
Olten, Solothurn 4600
Switzerland

Stefan Morkoetter

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Simone Westerfeld (Contact Author)

University of St. Gallen (HSG), School of Finance ( email )

Dufourstrasse
St. Gallen, 9000
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
189
PlumX Metrics