This paper addresses the impact of developments in the credit risk transfer market on the viability of a group of systemically important nancial institutions. We propose a bank default risk model, in the vein of the classic Merton-type, which utilizes a multi-equation framework to model forward-looking measures of market and credit risk using the credit default swap (CDS) index market as a measure of the global credit
environment. In the rst step, we establish the existence of signi cant detrimental volatility spillovers from the CDS market to the banks' equity prices, suggesting a credit shock propagation channel which results in serious deterioration of the valuation of banks' assets. In the second step, we show that substantial capital injections are required to restore the stability of the banking system to an acceptable level after shocks to the CDX and iTraxx indices. Our empirical evidence thus informs the relevant regulatory authorities on the magnitude of banking systemic risk jointly posed by CDS markets.
JEL Classi cation: C32, G21, G33
Key Words distance to default, credit derivatives, credit default swap index, financial stability
학회소식
학회소식
[2010년 제 4차] Credit Derivatives and the Default Risk of Large Co
작성자 : 관리자
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게시일 :
2010-12-09