Econometric Modelling of Stock Prices and CDS Spreads with Risk-Premiums (Presentation Slides)

Global Derivatives Trading Conference, Amsterdam, 2015

36 Pages Posted: 7 Sep 2017

Date Written: May 19, 2015

Abstract

We present a dynamic model for the joint evolution of the balance sheet, equity stock price, and the credit default spread (CDS). We illustrate why the structural default model cannot explain the dynamics of CDS rates. We then introduce the credit risk-premium to model spikes in CDS rates during stressed market conditions. We develop the statistical evidence for the regime-switching dynamics in stock prices and CDS rates. Finally, we provide applications for balance sheet optimization (dividend and debt policy) and trading strategies (credit, high yield, convertibles).

Keywords: Credit risk, risk-premia, cyclicality risk, diversification

JEL Classification: G10, G11, G12

Suggested Citation

Sepp, Artur, Econometric Modelling of Stock Prices and CDS Spreads with Risk-Premiums (Presentation Slides) (May 19, 2015). Global Derivatives Trading Conference, Amsterdam, 2015, Available at SSRN: https://ssrn.com/abstract=3032100

Artur Sepp (Contact Author)

LGT Bank (Schweiz) AG ( email )

Switzerland

HOME PAGE: http://artursepp.com/

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