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The Age of Turbulence - Credit Derivatives Style

Författare:
Publiceringsår: 2008
Språk: Engelska
Dokumenttyp: Working paper

Sammanfattning

This paper focuses on the many extreme credit default swap spread movements observed during the credit crisis 2007-08 and on how the tails of the spread change distribution significantly differ from those of the normal distribution. As a result, Value at Risk (VaR) estimates based on extreme value theory are found to be more accurate than those based on normal or historical distributions, particularly at more conservative VaR levels. However, not even extreme value theory methods are able to satisfactorily capture the extreme behavior of the credit derivatives market at the peak of the credit crisis. We find the extreme turbulence in the credit derivatives market in July 2007 to be comparable only to that of the US equity market in October 1987.

Disputation

Nyckelord

  • Business and Economics

Övriga

Submitted

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