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CreditGrades and the iTraxx CDS index market

In English

Författare

Summary, in English

In the study reported, the CreditGrades model was used to calculate credit default swap spreads and the spreads were compared with empirically observed CDS spreads for eight iTraxx indices covering Europe. Theoretical and empirical spread changes were found to be significantly correlated. Also, lagged theoretical spread changes were correlated with current iTraxx spread changes. The correlations indicate a close relationship between the stock market and the CDS market and also indicate some predictive ability of the CreditGrades model. Simple trading strategies based on the autocorrelation and predictive ability of the model produced positive profits, before trading costs, when trading was within the bid-ask spread.

Publiceringsår

2006

Språk

Engelska

Sidor

65-76

Publikation/Tidskrift/Serie

Financial Analysts Journal

Volym

62

Issue

6

Dokumenttyp

Artikel i tidskrift

Förlag

CFA Institute (Chartered Financial Analysts Institute)

Ämne

  • Economics

Status

Published

ISBN/ISSN/Övrigt

  • ISSN: 0015-198X