Interconnectedness and systemic risk in the US CDS market |
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| Institution: | 1. Institute of Business Research, University of Economics Ho Chi Minh City, Viet Nam;2. South Ural State University, 76, Lenin prospekt, Chelyabinsk, Russian Federation;3. Institute of Business Research and CFVG Ho Chi Minh City, University of Economics Ho Chi Minh City, Viet Nam;1. Gabelli School of Business, Fordham University, 45 Columbus Avenue, New York, NY 10019, United States;2. FICC, Taipei Fubon Commercial Bank, 18F 169 Section 4 Ren Ai Road, Taipei, Taiwan;1. School of Finance and Accounting, Fuzhou University of International Studies and Trade, No. 28, Yuhuan Road, Shouzhan New District, Changle, Fuzhou City, Fujian Province, China;2. International School of Business and Finance, Sun Yat-sen University, Zhuhai City, Guangdong Province, 519082, China;3. Department of Finance, National Sun Yat-sen University, No. 70 Lien-hai Rd., Kaohsiung 804, Taiwan, ROC;1. Research Center of the Central China for Economic and Social Development, Nanchang University, China;2. School of Economics and Management, Nanchang University, China;3. Department of Accounting Information, National Taichung University of Science & Technology, Sanmin Rd., Sec. 3, Taichung 40401, Taiwan;1. Department of Finance, California State University, Fullerton, United States;2. Institute of Finance, National Chiao Tung University, Taiwan;3. China University of Technology and National Chiao Tung University, Taiwan |
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| Abstract: | This study assesses systemic risk in the US credit default swap (CDS) market. First, this study estimates the bilateral exposures matrix using aggregate fair value data and theoretically analyze interconnectedness in the US CDS network using various network measures. Second, this study theoretically analyzes the contagious defaults. The default analysis shows the theoretical occurrence of many stand-alone defaults and one contagious default via the CDS network during the global financial crisis. A stress test based on a hypothetical severe stress scenario predicts almost no future contagious defaults. Thus, risk contagion via the CDS network is unlikely. |
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| Keywords: | Credit default swap Systemic risk Contagious default Interconnectedness Centrality measure G10 D85 L14 G28 F37 |
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