Credit Default Swap Spreads and US Financial Market: Investigating some dependence structure

DefaultRisk.com the web's biggest credit risk modeling resource.

Submit Your Paper

Fitch Ratings Jobs

[ Worldwide]

Post Your Résumé
For Recruiters

Featured Book

Advanced Analytical Models, + DVD: Over 800 Models and 300 Applications from the Basel II Accord to Wall Street and Beyond
by Johnathan Mun, Wiley, May 2, 2008, Hardcover, 1032 pages

Training Discounted for DefaultRisk.com visitors only:

The Mathematics of Credit Derivatives: The Essential Credit Modelling and Pricing Companion
by Philipp J. Schönbucher,
WBS Training, August 2003, DVD / Interactive CD-ROM

Sponsor:
Shop at Amazon.com and support DefaultRisk.com

Credit Default Swap Spreads and US Financial Market: Investigating some dependence structure

by Hayette Gatfaoui of Rouen School of Management

September 2007

Abstract: Under Basel II framework, credit risk assessment is of high significance in the light of correlation risk. Correlation risk is often envisioned along with business conditions and financial market's impact. We employ copula methodology to identify the dependence structures that may exist between market risk fundamentals and credit risk fundamentals. Considering credit derivative spreads as credit risk fundamentals and market data as market risk determinants, we describe and quantify the asymmetric link prevailing between credit risk and market risk. Credit risk is negatively linked with market price risk whereas it becomes positively linked with market volatility risk. Such patterns give rise to interesting asymmetric dependence structures between both risk sources.

JEL Classification: C16, C32, D81.

Keywords: Archimedean copulas, concordance measures, credit risk, market risk, tail dependence.

Books Referenced in this Paper: (what is this?)