Explaining credit default swap premia

✍ Scribed by Christoph Benkert

• Book ID: 102218895
• Publisher: John Wiley and Sons
• Year: 2003
• Tongue: English
• Weight: 169 KB
• Volume: 24
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.10112

✦ Synopsis

Abstract

This article proposes a simple approach for explaining credit default swap premia. Specifically, it
investigates the effects of historical and option‐implied equity volatility on credit default swap premia,
thus extending an idea proposed by Campbell and Taksler (in press) in the
context of corporate bond yields. Using panel data of credit default swaps on 120 international firms from 1999 to
mid‐2002, it becomes evident that option‐implied volatility is a more important factor in explaining
variation in credit default swap premia than historical volatility. © 2004 Wiley Periodicals, Inc. Jrl Fut
Mark 24:71–92, 2004