| Item Type |
Journal paper
|
| Abstract |
As observed throughout the financial crisis in 2008 CDS contracts are not only exposed to the credit risk of the underlying reference entity but also to the counterparty risk of the protection seller. Conducting a panel regression analysis based on CDS contracts from 2004 to 2009 in Europe and North America for 198 reference entities we find that market-oriented counterparty risk measures are reflected in the pricing of CDS contracts. The impact of counterparty risk is decreasing with a higher creditworthiness of the underlying reference entity. We show that counterparty risk has been incorporated in the CDS spreads for North American reference entities already prior to the financial crisis, whereas for European reference entities the pricing impact only intensified with the outbreak of the financial crisis in September 2008. Market-based counterparty risk measures have a higher impact on the pricing of CDS contracts as compared to measures relying on the correlation structures of asset returns of reference entities and CDS counterparties. |
| Authors |
Morkötter, Stefan; Pleus, Johanna & Westerfeld, Simone |
| Journal or Publication Title |
Journal of Credit Risk |
| Language |
English |
| Subjects |
business studies |
| HSG Classification |
contribution to scientific community |
| Refereed |
Yes |
| Date |
28 March 2012 |
| Publisher |
Incisive Media |
| Place of Publication |
London |
| Volume |
8 |
| Number |
1 |
| Page Range |
63-88 |
| Number of Pages |
26 |
| ISSN |
1744-6619 |
| Depositing User |
Prof. Dr. Stefan Morkötter
|
| Date Deposited |
08 Nov 2011 15:37 |
| Last Modified |
20 Jul 2022 17:08 |
| URI: |
https://www.alexandria.unisg.ch/publications/206952 |
The Impact of Counterparty Risk on Credit Default Swap Pricing Dynamics
