10.4225/50/583d48bd47383
Sebastian Lohr
Arndt Claussen
Daniel Rosch
Valuation of Systematic Risk in the Cross-Section of Credit Default Swap Spreads
Centre for International Finance and Regulation
2014
Policy Online
During the global financial crisis (GFC), there was an apparent mismatch between credit ratings and related default risks. This was specifically evident in the credit default swap (CDS) market, where spreads on higher-rated credits widened to a greater extent than those on lower-rated credits. This paper analyses the pricing of systematic risk factors in CDS contracts. It further examines whether contract-specific sensitivities to systematic risk factors are priced into swap contracts by controlling for individual risk factors.