Trading the differences in expectations between the CDS and bond markets

Detalhes bibliográficos
Autor(a) principal: Madeira, João Pedro da Viega
Data de Publicação: 2015
Tipo de documento: Dissertação
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10362/15417
Resumo: This paper uses the framework developed by Vrugt (2010) to extract the recovery rate and term-structure of risk-neutral default probabilities implied in the cross-section of Portuguese sovereign bonds outstanding between March and August 2011. During this period the expectations on the recovery rate remain firmly anchored around 50 percent while the instantaneous default probability increases steadily from 6 to above 30 percent. These parameters are then used to calculate the fair-value of a 5-year and 10- year CDS contract. A credit-risk-neutral strategy is developed from the difference between the market price of a CDS of the same tenors and the fair-value calculated, yielding a sharpe ratio of 3.2
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spelling Trading the differences in expectations between the CDS and bond marketsEuropean soverign debt crisisSoverign credit riskCDS arbitragingThis paper uses the framework developed by Vrugt (2010) to extract the recovery rate and term-structure of risk-neutral default probabilities implied in the cross-section of Portuguese sovereign bonds outstanding between March and August 2011. During this period the expectations on the recovery rate remain firmly anchored around 50 percent while the instantaneous default probability increases steadily from 6 to above 30 percent. These parameters are then used to calculate the fair-value of a 5-year and 10- year CDS contract. A credit-risk-neutral strategy is developed from the difference between the market price of a CDS of the same tenors and the fair-value calculated, yielding a sharpe ratio of 3.2Eça, Afonso FuzetaRUNMadeira, João Pedro da Viega2015-09-16T15:02:25Z2015-012015-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/masterThesisapplication/pdfhttp://hdl.handle.net/10362/15417TID:201474883enginfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-03-11T03:51:29Zoai:run.unl.pt:10362/15417Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T03:22:30.927646Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv Trading the differences in expectations between the CDS and bond markets
title Trading the differences in expectations between the CDS and bond markets
spellingShingle Trading the differences in expectations between the CDS and bond markets
Madeira, João Pedro da Viega
European soverign debt crisis
Soverign credit risk
CDS arbitraging
title_short Trading the differences in expectations between the CDS and bond markets
title_full Trading the differences in expectations between the CDS and bond markets
title_fullStr Trading the differences in expectations between the CDS and bond markets
title_full_unstemmed Trading the differences in expectations between the CDS and bond markets
title_sort Trading the differences in expectations between the CDS and bond markets
author Madeira, João Pedro da Viega
author_facet Madeira, João Pedro da Viega
author_role author
dc.contributor.none.fl_str_mv Eça, Afonso Fuzeta
RUN
dc.contributor.author.fl_str_mv Madeira, João Pedro da Viega
dc.subject.por.fl_str_mv European soverign debt crisis
Soverign credit risk
CDS arbitraging
topic European soverign debt crisis
Soverign credit risk
CDS arbitraging
description This paper uses the framework developed by Vrugt (2010) to extract the recovery rate and term-structure of risk-neutral default probabilities implied in the cross-section of Portuguese sovereign bonds outstanding between March and August 2011. During this period the expectations on the recovery rate remain firmly anchored around 50 percent while the instantaneous default probability increases steadily from 6 to above 30 percent. These parameters are then used to calculate the fair-value of a 5-year and 10- year CDS contract. A credit-risk-neutral strategy is developed from the difference between the market price of a CDS of the same tenors and the fair-value calculated, yielding a sharpe ratio of 3.2
publishDate 2015
dc.date.none.fl_str_mv 2015-09-16T15:02:25Z
2015-01
2015-01-01T00:00:00Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/masterThesis
format masterThesis
status_str publishedVersion
dc.identifier.uri.fl_str_mv http://hdl.handle.net/10362/15417
TID:201474883
url http://hdl.handle.net/10362/15417
identifier_str_mv TID:201474883
dc.language.iso.fl_str_mv eng
language eng
dc.rights.driver.fl_str_mv info:eu-repo/semantics/openAccess
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron:RCAAP
instname_str Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron_str RCAAP
institution RCAAP
reponame_str Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
collection Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
repository.name.fl_str_mv Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
repository.mail.fl_str_mv
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