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4 edition of Explaining credit default swap spreads with equity volatility and jump risks of individual firms found in the catalog.

Explaining credit default swap spreads with equity volatility and jump risks of individual firms

Yibin Zhang

Explaining credit default swap spreads with equity volatility and jump risks of individual firms

by Yibin Zhang

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Published by Bank for International Settlements in Basel, Switzerland .
Written in English


About the Edition

A structural model with stochastic volatility and jumps implies particular relationships between observed equity returns and credit spreads. This paper explores such effects in the credit default swap (CDS) market. We use a novel approach to identify the realized jumps of individual equity from high frequency data. Our empirical results suggest that volatility risk alone predicts 50% of CDS spread variation, while jump risk alone forecasts 19%. After controlling for credit ratings, macroeconomic conditions, and firms" balance sheet information, we can explain 77% of the total variation. Moreover, the marginal impacts of volatility and jump measures increase dramatically from investment grade to high-yield entities. The estimated nonlinear effects of volatility and jumps are in line with the model implied relationships between equity returns and credit spreads.

Edition Notes

Statementby Benjamin Yibin Zhang, Hao Zhou & Haibin Zhu.
SeriesBIS working papers,, no. 181, BIS working papers (Online) ;, no. 181.
ContributionsZhou, Hao, 1967-, Zhu, Haibin, 1972-, Bank for International Settlements. Monetary and Economic Dept.
Classifications
LC ClassificationsHG3879
The Physical Object
FormatElectronic resource
ID Numbers
Open LibraryOL3478747M
LC Control Number2005618940


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Explaining credit default swap spreads with equity volatility and jump risks of individual firms by Yibin Zhang Download PDF EPUB FB2