Assessment of time-varying systemic risk in credit default swap indices: Simultaneity and contagiousness

This study assesses systemic risk inherent in credit default swap (CDS) indices using empirical and statistical analyses. We define systemic risk in two perspectives: the possibilities of simultaneous and contagious defaults, and then quantify them separately across benchmark models. To do so, we employ a Marshall-Olkin copula model to measure simultaneous default risk, and an interacting intensity-based model to capture contagious default risk. For an empirical test, we collect daily data for the iTraxx Europe CDS index and its tranche prices in the period from 2005 to 2014, and calibrate model parameters varying across time. In addition, we select forecasting models that have minimal prediction errors for the calibrated time series. Finally, we identify significant changes in each dynamic of systemic risk indicator before and after default and downgrade-related episodes that have occurred in the global financial crisis and European sovereign debt crisis.     

Forecasting corporate default risk in China

Default risk prediction can not only provide forward-looking and timely risk measures for regulators and investors, but also improve the stability of the financial system. However, the determinants of corporate default risk in China have not been well-identified. An empirical analysis was conducted using a unique dataset of default events in the Chinese market to fill this gap. First, we demonstrated that the default probability estimated by a structural model, which is widely used in the literature, do not fully reveal the default risk of firms in China. Second, we classified default events into minor and major defaults for empirical analysis. We found that firms that survive minor defaults behave differently from other bankrupt firms. Our results suggest that the determinants of corporate default risk in China and the United States differ. We also found that a firm’s continued increase in cash holdings is one of the most important signs of default. Overall, our study significantly improves the accuracy of forecasting corporate default risk in China.     

How do “gatekeepers” affect credit risk?

This study investigates the relationship between auditor tenure and credit default swap (CDS) spreads of U.S. firms based on quantile regression. After allowing for common determinants of CDS spreads, auditor tenure exerts both statistically and economically significant additional impacts on the CDS market. Furthermore, there are differential effects of common CDS spread determinants and auditor tenure. While common determinants of CDS spreads (e.g., leverage, volatility, risk free rate, credit ratings, and earnings) have monotonically increasing impacts when CDS spreads (and their changes) are increasingly higher, auditor tenure primarily has the impact when CDS spreads are of low or median levels for less risky firms.     

Credit Default Swaps: Risk Hedge or Financial Weapon of Mass Destruction?

Credit default swaps (CDSs) are contracts between buyers and sellers of protection against default. They are a form of debt insurance, or more precisely derivatives contracts that investors buy to either insure against or profit from a default. In this way CDS contracts act as a form of debt insurance in that they provide a means of protection against credit risk. In the aftermath of the global financial crisis, the CDS earned the reputation of a ‘financial weapon of mass destruction’. Why? Is this charge justified? This paper shows that the reality is more complex: CDSs carry benefit as well as costs, and the risks associated with them can be mitigated through prudent supervision.     

A model of the topology of the bank – firm credit network and its role as channel of contagion

This paper proposes a stochastic model of a bipartite credit network between banks and the non-bank corporate sector that encapsulates basic stylized facts found in comprehensive data sets for bank-firm loans for a number of countries. When performing computational experiments with this model, we find that it shows a pronounced non-linear behavior under shocks: the default of a single unit will mostly have practically no knock-on effects, but might lead to an almost full-scale collapse of the entire system in a certain number of cases. The dependency of the overall outcome on firm characteristics like size or number of loans seems fuzzy. Distinguishing between contagion due to interbank credit and due to joint exposures to counterparty risk via loans to firms, the later channel appears more important for contagious spread of defaults.     

Measuring connectedness of euro area sovereign risk

We introduce a method for measuring the default risk connectedness of euro zone sovereign states using credit default swap (CDS) and bond data. The connectedness measure is based on an out-of-sample variance decomposition of model forecast errors. Due to its predictive nature, it can respond to crisis occurrences more quickly than common in-sample techniques. We determine the sovereign default risk connectedness using both CDS and bond data in order to obtain a more comprehensive picture of the system. We find evidence that there are several observable factors that drive the difference between CDS and bonds, but both data sources still contain specific information for connectedness spill-overs. In general, we can identify countries that impose risk on the system and the respective spill-over channels. Our empirical analysis covers the years 2009–2014, such that the recovery paths of countries exiting EU and IMF financial assistance schemes and the responses to the ECB’s unconventional policy measures can be analyzed.     

Market perception of sovereign credit risk in the euro area during the financial crisis

We study market perception of sovereign credit risk in the euro area during the financial crisis. In our analysis we use a parsimonious CDS pricing model to estimate the probability of default (PD) and the loss given default (LGD) as perceived by financial markets. In our empirical results the estimated LGDs perceived by financial markets stay comfortably below 40% in most of the samples. Global financial indicators are positively and strongly correlated with the market perception of sovereign credit risk; whilst macroeconomic and institutional developments were at best only weakly correlated with the market perception of sovereign credit risk.     

The impact of central clearing on the market for single-name credit default swaps

In this article, we revisit the impact of the voluntary central clearing scheme on the CDS market. In order to address the endogeneity problem, we use a robust methodology that relies on dynamic propensity-score matching combined with generalized difference-in-differences. Our empirical findings show that central clearing results in a small increase in CDS spreads (ranging from 14 to 19 bps), while there is no evidence of an associated improvement in CDS market liquidity and trading activity or of a deterioration in the default risk of the underlying bond. These results suggest that the increase in CDS spreads can be mainly attributed to a reduction in CDS counterparty risk.     

CFO权力与企业债务违约

本文从组织权力、专家权力、声誉权力、所有权权力四方面构建CFO综合权力指数,基于2008~2017年沪深A股数据,分析了CFO权力对企业债务违约概率的影响及作用机制。研究结果显示,CFO权力越大,企业债务违约概率越低,在控制内生性影响后,该结论仍然成立。进一步研究发现,具有较大权力的CFO通过降低业绩波动性和缓解融资约束来抑制企业发生债务违约。本文从CFO权力视角拓展了债务违约影响因素研究,对企业完善人力资源制度安排和降低债务违约风险具有一定的借鉴价值。     

Premia for correlated default risk

Using data on corporate default experience in the U.S. and market rates of CDX index and tranche swaps of various maturities, we estimate reduced-form models of correlated default timing in the CDX High Yield and Investment Grade portfolios under actual and risk-neutral probabilities. The striking contrast between the estimated processes followed by the actual and risk-neutral arrival intensities of defaults, and between the parameters governing the actual and risk-neutral dynamics of the risk-neutral intensities, indicates the presence of substantial default risk premia in CDX swap market rates. The effects of risk premia on swap rates covary strongly across maturities, and depend on general stock market volatility and several measures of credit spreads. Large moves in the effects of these premia on swap rates have natural interpretations in terms of economic and financial market developments during the sample period, April 2004 to October 2007. Our results suggest that a large portion of the movements in CDX swap market rates observed during the sample period may be caused by changing attitudes toward correlated default risk rather than changes in the economic factors affecting the actual risk of clustered defaults, which ultimately governs swap payoffs.     

大股东股权质押、风险承担水平与债券违约风险

基于2015—2019年发生实质性债券违约的上市公司数据,运用二元Probit回归模型,从风险承担水平角度研究大股东股权质押对上市公司债券违约风险的影响。研究发现：大股东股权质押率与债券违约风险显著正相关,风险承担水平在股权质押与债券违约之间发挥了中介作用,高股权质押率的企业通过对其风险承担水平的影响,增加债券违约风险。进一步研究产权性质和信息质量差异对股权质押与债券违约关系的影响,结果显示,在不同产权性质、不同程度信息质量组别中,股权质押比例对债券违约的正向影响均存在差异,且该正向作用在非国有企业、低信息质量组中更为强烈。     

绿色债券发行能缓解企业债务违约风险吗？——基于多期DID模型的研究

运用理论模型对企业发行不同债券时的差异性情景进行分析,提出企业的绿色债券发行对自身债务违约风险存在抑制效应,并选取2016—2020年1604家上市非金融公司的年度面板数据,基于多期DID模型进行实证检验。研究表明：企业发行绿色债券可以显著降低自身债务违约风险;企业发行绿色债券可以通过缓解融资约束、降低债务融资成本、提高股票流动性和增强绿色声誉这四个渠道降低自身的债务违约风险;外部融资依赖度高、研发支出占比低、信息披露程度高和管理者短视程度低的企业发行绿色债券可以更显著地降低自身债务违约风险。政策上应该进一步引导企业合理发行绿色债券,推动绿色金融的发展。     

Mutual excitation in Eurozone sovereign CDS

We study self- and cross-excitation of shocks in the Eurozone sovereign CDS market. We adopt a multivariate setting with credit default intensities driven by mutually exciting jump processes, to capture the salient features observed in the data, in particular, the clustering of high default probabilities both in time (over days) and in space (across countries). The feedback between jump events and the intensity of these jumps is the key element of the model. We derive closed-form formulae for CDS prices, and estimate the model by matching theoretical prices to their empirical counterparts. We find evidence of self-excitation and asymmetric cross-excitation. Using impulse-response analysis, we assess the impact of shocks and a potential policy intervention not just on a single country under scrutiny but also, through the effect on cross-excitation risk which generates systemic sovereign risk, on other interconnected countries.     

高密度导弹内挂装置故障诊断神经网络专家系统设计

本文设计了基于神经网络的专家系统,针对机载导弹内置式挂架的液压、电气控制系统、驱动系统及机械执行部件进行诊断。最后实例分析了该系统在导弹内挂及其发射装置中液压、电气及机械故障的诊断效果。     

A mixture model for credit card exposure at default using the GAMLSS framework

The Basel II and III Accords propose estimating the credit conversion factor (CCF) to model exposure at default (EAD) for credit cards and other forms of revolving credit. Alternatively, recent work has suggested it may be beneficial to predict the EAD directly, i.e.modelling the balance as a function of a series of risk drivers. In this paper, we propose a novel approach combining two ideas proposed in the literature and test its effectiveness using a large dataset of credit card defaults not previously used in the EAD literature. We predict EAD by fitting a regression model using the generalised additive model for location, scale, and shape (GAMLSS) framework. We conjecture that the EAD level and risk drivers of its mean and dispersion parameters could substantially differ between the debtors who hit the credit limit (i.e.“maxed out” their cards) prior to default and those who did not, and thus implement a mixture model conditioning on these two respective scenarios. In addition to identifying the most significant explanatory variables for each model component, our analysis suggests that predictive accuracy is improved, both by using GAMLSS (and its ability to incorporate non-linear effects) as well as by introducing the mixture component.     

CREDIT DEFAULT SWAPS – WEAPON OF MASS DESTRUCTION OR RELIABLE INDICATOR?

Credit Default Swaps (CDS) are said to increase systemic vulnerability, but they also serve as an ex‐ante indicator of default probabilities, more finely‐tuned and more responsive than ratings agency reports. And they provide a useful mechanism for trading risk and an incentive for good management by businesses and governments.     

Analyzing credit risk transmission to the nonfinancial sector in Europe: A network approach

We use a factor model and elastic net shrinkage to model a high-dimensional network of European credit default swap (CDS) spreads. Our empirical approach allows us to assess the joint transmission of bank and sovereign risk to the nonfinancial corporate sector. Our findings identify a sectoral clustering in the CDS network, where financial institutions are in the center and nonfinancial entities as well as sovereigns are grouped around the financial center. The network has a geographical component reflected in different patterns of real-sector risk transmission across countries. Our framework also provides dynamic estimates of risk transmission, a useful tool for systemic risk monitoring.     

Environmental,social and governance disclosure and default risk

We investigate whether environmental, social and governance (ESG) disclosure is related to default risk. Using a sample of US nonfinancial institutions from 2006 to 2017, we find that ESG disclosure is positively related to Merton's distance to default and is negatively related to the credit default swap spread, which suggests that firms with a higher ESG disclosure have lower default risk. Our analysis further indicates that the inverse effect of ESG disclosure on default risk is through increased profitability and reduced performance variability and cost of debt. We also document that the negative impact of ESG disclosure on default risk is existent only for mature and older firms. These results are important for all stakeholders of firms, including shareholders and bondholders to consider firm's ESG disclosure in conjunction with life cycle stage before making their investment decisions.     

Identifying contagion

Identifying contagion effects during periods of financial crisis is known to be complicated by the changing volatility of asset returns during periods of stress. To untangle this we propose a GARCH (generalized autoregressive conditional heteroskedasticity) common features approach, where systemic risk emerges from a common factor source (or indeed multiple factor sources) with contagion evident through possible changes in the factor loadings relating to the common factor(s). Within a portfolio mimicking factor framework this can be identified using moment conditions. We use this framework to identify contagion in three illustrations involving both single and multiple factor specifications: to the Asian currency markets in 1997–1998, to US sectoral equity indices in 2007–2009 and to the CDS (credit default swap) market during the European sovereign debt crisis of 2010–2013. The results reveal the extent to which contagion effects may be masked by not accounting for the sources of changed volatility apparent in simple measures such as correlation.     

Default models based on scale mixtures of Marshall-Olkin copulas: properties and applications

We present a unification of the Archimedean and the Lévy-frailty copula model for portfolio default models. The new default model exhibits a copula known as scale mixture of Marshall-Olkin copulas and an investigation of the dependence structure reveals that desirable properties of both original models are combined. This allows for a wider range of dependence patterns, while the analytical tractability is retained. Furthermore, simultaneous defaults and default clustering are incorporated. In addition, a hierarchical extension is presented which allows for a heterogeneous dependence structure. Finally, the model is applied to the pricing of CDO contracts. For this purpose, an efficient Laplace transform inversion approach is developed. Supporting a separation of marginal default probabilities and dependence structure, the model can be calibrated to CDS contracts in a first step. In a second step, the calibration of several parametric families to CDO contracts demonstrates a good fitting quality, which further emphasizes the suitability of the approach.