Trading the differences in expectations between the CDS and bond markets
Autor(a) principal: | |
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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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7160 |
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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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1799137863924711424 |