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We explore the dynamics of the adjusted swap spread (calculated as the difference between the swap rate and sovereign yields over the credit default swap premium) in the Eurozone market by studying three markets simultaneously: 1) sovereign bonds, 2) credit default swaps (CDS), and 3) swap rates. We find a strong relationship between the markets. Specifically, based on the no-arbitrage argument, we show that the difference between the Euribor and Repo rates is a key driver of the adjusted swap spread. However, illiquidity premiums and systemic risk also play an essential role in times of economic stress and for less creditworthy countries. The findings also shed light on the recent negative swap spreads puzzle in the United States. 相似文献
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Pricing default swaps: Empirical evidence 总被引:1,自引:0,他引:1
In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model outperforms directly comparing bonds' credit spreads to default swap premiums. We find that the model yields unbiased premium estimates for default swaps on investment grade issuers, but only if we use swap or repo rates as proxy for default-free interest rates. This indicates that the government curve is no longer seen as the reference default-free curve. We also show that the model is relatively insensitive to the value of the assumed recovery rate. 相似文献
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We infer a term structure of interbank risk from spreads between rates on interest rate swaps indexed to the London Interbank Offered Rate (LIBOR) and overnight indexed swaps. We develop a tractable model of interbank risk to decompose the term structure into default and non-default (liquidity) components. From August 2007 to January 2011, the fraction of total interbank risk due to default risk, on average, increases with maturity. At short maturities, the non-default component is important in the first half of the sample period and is correlated with measures of funding and market liquidity. The model also provides a framework for pricing, hedging, and risk management of interest rate swaps in the presence of significant basis risk. 相似文献
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Existing theories of the term structure of swap rates provide an analysis of the Treasury–swap spread based on either a liquidity convenience yield in the Treasury market, or default risk in the swap market. Although these models do not focus on the relation between corporate yields and swap rates (the LIBOR–swap spread), they imply that the term structure of corporate yields and swap rates should be identical. As documented previously (e.g., in Sun, Sundaresan, and Wang (1993)) this is counterfactual. Here, we propose a model of the default risk imbedded in the swap term structure that is able to explain the LIBOR–swap spread. Whereas corporate bonds carry default risk, we argue that swap contracts are free of default risk. Because swaps are indexed on "refreshed"-credit-quality LIBOR rates, the spread between corporate yields and swap rates should capture the market's expectations of the probability of deterioration in credit quality of a corporate bond issuer. We model this feature and use our model to estimate the likelihood of future deterioration in credit quality from the LIBOR–swap spread. The analysis is important because it shows that the term structure of swap rates does not reflect the borrowing cost of a standard LIBOR credit quality issuer. It also has implications for modeling the dynamics of the swap term structure. 相似文献
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RESEARCH DEPARTMENT CHINA FOREIGN EXCHANGE TRADE SYSTEM&NATIONAL INTERBANK FUNDING CENTER 《中国货币市场》2011,(8):57-67
2011年7月,银行间市场平稳运行,交易稳步增长。主要特点是:货币市场利率震荡下行,银行间国债收益率曲线上移明显;外汇即期市场交易延续活跃,外汇掉期曲线整体上移,汇率升值预期减弱,人民币外汇期权交易进一步活跃。人民币外汇掉期、远期净额清算试运行,净额清算业务向衍生品市场延伸。 相似文献
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MIKLOS VARI 《Journal of Money, Credit and Banking》2020,52(2-3):409-440
This paper shows how interbank market fragmentation disrupts the transmission of monetary policy. Fragmentation is the fact that banks, depending on their country of location, have different probabilities of default on their interbank borrowings. Once fragmentation is introduced into standard theoretical models of monetary policy implementation, excess liquidity arises endogenously. This leads short-term interest rates to depart from the central bank policy rates. Using data on monetary policy operations, I show that this mechanism has been at work in the euro area since 2008. The model is used to analyze conventional and unconventional monetary policy measures. 相似文献
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We investigate the information contained in the London Interbank Offered Rate (LIBOR) and the U.S. Constant Maturity Treasury (CMT) term structure of interest rates and report three novel findings. First, we document that the information contained in term structures are significantly different from one another. Second, we provide evidence of a significant change in the nature of this difference as the financial crisis began. Third, we find that the significant changes in the information content of CMT and LIBOR are consistent with significant shocks to credit default swap rates and tenor swap rates. 相似文献
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RESEARCH DEPARTMENT CHINA FOREIGN EXCHANGE TRADE SYSTEM & NATIONAL INTERBANK FUNDING CENTER 《中国货币市场》2011,(9):59-67
2011年8月,银行间市场平稳运行,交易量较上月小幅增长。主要特点是:货币市场利率先抑后扬;银行间国债收益率曲线平坦化;人民币对美元汇率中间价升值步伐明显加快,交易价波动加剧;利率互换交易再创单月历史新高;外汇掉期曲线整体小幅上移,显示升值预期减弱;外汇即期竞价清算业务正式移交上海清算所。 相似文献
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This paper extends Bjork and Clapham (Journal of Housing Economics 11:418–432, 2002) model for pricing real estate index total
return swaps. Our extension considers counterparty default risk within a first passage contingent claims model. We price total
return swaps on property indices with different levels of default risk. We develop this model under same assumptions as Bjork
and Clapham (Journal of Housing Economics 11:418–432, 2002) and find that total return swap price is no longer zero. Total
return swap payer must charge a spread over the market interest rate that compensates him for the exposure to this additional
risk. Based on commercial property indices in the UK, we observe that computed spreads are much lower than a sample of quotes
obtained from one of the traders in the market. 相似文献
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In this paper, we suggest a first-passage-time model which can explain default probability and default correlation dynamics under stochastic market environment. We add a Markov regime-switching market condition to the first-passage-time model of Zhou [Zhou, C., 2001. An analysis of default correlations and multiple defaults. Review of Financial Studies 14, 555–576]. Using this model, we try to explain various relationship between default probability, default correlation, and market condition. We also suggest a valuation method for credit default swap (CDS) with (or without) counterparty default risk (CDR) and basket default swap under this model.Our numerical results provide us with several meaningful implications. First, default swap spread is higher in economic recession than in economic expansion across default swap maturity. Second, as the difference of asset return volatility between under bear market and under bull market increases, CDS spread increases regardless of maturity. Third, the bigger the intensity shifting from bull market to bear market, the higher the spread for both CDS without CDR and basket default swap. 相似文献
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This article develops a multi-factor econometric model of the term structure of interest-rate swap yields. The model accommodates the possibility of counterparty default, and any differences in the liquidities of the Treasury and Swap markets. By parameterizing a model of swap rates directly, we are able to compute model-based estimates of the defaultable zero-coupon bond rates implicit in the swap market without having to specify a priori the dependence of these rates on default hazard or recovery rates. The time series analysis of spreads between zero-coupon swap and treasury yields reveals that both credit and liquidity factors were important sources of variation in swap spreads over the past decade. 相似文献
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Isabel Vieira 《European Journal of Finance》2013,19(5):514-532
The level of capital mobility prevailing within a group of core European Union (EU) countries is evaluated by means of cointegration-based tests of the covered interest parity (CIP). Unlike previous studies, this one concentrates on long maturities, investigating three to ten-year assets, and employing swap rates as a means of covering foreign exchange risk. Although CIP has not been previously assessed for EU long-term interest rates, such evaluation has practical interest. In fact, given EU member states' scarcity of mechanisms to react to asymmetric shocks, financial markets may become one major source of adjustment and stabilization. To this end, it is the mobility of long-term capital that is of critical importance. The analysis in this paper suggests that long-term financial flows appear to be completely unrestrained only between domestic Dutch and German markets. 相似文献
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The current literature suggests that uncovered interest parity (UIP) does not hold because of differences in risk in holding different currency denominated debt. We test whether this risk is related to sovereign credit risk in government bonds. We consider an insured uncovered interest parity relationship – that is, one where debt is insured with credit default swap (CDS) contracts. CDS rates help explain the UIP puzzle but have no predictive power for carry trade returns and currency movements. 相似文献
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RESEARCH DEPARTMENT 《中国货币市场》2010,(8):56-67
2010年7月份,银行间货币、外汇、债券、利率和汇率衍生品市场的整体运行特点是:货币市场利率持续回落,短端Shibor各期限品种普遍下降,中长端Shibor涨跌不一;银行间国债指数大幅上升;人民币对美元汇率月末中间价与上月末相比升值0.23%,掉期价格显示人民币对美元升值压力缓解。 相似文献
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We theorize and confirm a new channel by means of which liquidity costs are embedded in CDS spreads. We show that credit default swap (CDS) spreads are directly related to equity market liquidity in the Merton [Merton, R.C., 1974. On the pricing of corporate debt: The risk structure of interest rates. J. Finance 29, 449–470] model via hedging. We confirm this relationship empirically using a sample of 1452 quarterly CDS spreads over 2001–2005. In the model, this relationship is monotone increasing when credit quality worsens. These results are robust to alternative measures of equity liquidity and other possible determinants of CDS spreads. 相似文献
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We investigate the determinants of changes in U.S. interest rate swap spreads using a model that explicitly allows for volatility interactions between swaps of different terms to maturity. Changes in the swap spread are found to be positively related to interest rate volatility, to changes in the default risk premium in the corporate bond market, and to changes in the liquidity premium for government securities. Swap spread changes are negatively related to changes in the level of interest rates and changes in the slope of the term structure. We also find that there is a strong and significant volatility interaction among spreads for swaps of different maturities and that the process for the conditional variance of the spread is highly persistent across all maturities. 相似文献