Computational Statistics

, Volume 30, Issue 3, pp 845–863

Common factors in credit defaults swap markets

Original Paper

DOI: 10.1007/s00180-015-0578-6

Cite this article as:
Chen, C.YH. & Härdle, W.K. Comput Stat (2015) 30: 845. doi:10.1007/s00180-015-0578-6
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Abstract

We examine what are the common factors that determine systematic credit risk, and estimate and interpret these factors. We also compare the contributions of common factors in explaining the changes of credit default swap spreads during the pre-crisis, the crisis and the post-crisis period; there is evidence to suggest that the eigenstructures across these three sub-periods are distinct. Furthermore, we examine whether the observable economic variables are in fact the underlying latent factors and analyze the predictability in the factors that capture the time-variation of credit default swap spreads.

Keywords

Credit default swaps Common factors Credit risk  Factor model 

Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.Department of FinanceChung Hua UniversityHsinchuTaiwan
  2. 2.Ladislaus von Bortkiewicz Chair of Statistics, C.A.S.E. - Center for Applied Statistics and EconomicsHumboldt-Universität zu BerlinBerlinGermany
  3. 3.Sim Kee Boon Institute for Financial EconomicsSingapore Management UniversitySingaporeSingapore

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