Valuation Differences Between Credit Default Swap and Corporate Bond Markets
Author | : Oliver Entrop |
Publisher | : |
Total Pages | : 44 |
Release | : 2014 |
ISBN-10 | : OCLC:1308961316 |
ISBN-13 | : |
Rating | : 4/5 (16 Downloads) |
Download or read book Valuation Differences Between Credit Default Swap and Corporate Bond Markets written by Oliver Entrop and published by . This book was released on 2014 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper quantifies and explains valuation differences between credit default swaps and corporate bonds from a sample of European investment-grade firms. Based on all information gained through the calibration of a stochastic intensity credit model to the time series of the issuer's CDS curve, we define a new corporate bond-specific measure for the valuation difference. Our results show that, on average, risk premia implied in corporate bonds exceed those in CDS markets by a much smaller extent than found in previous studies. Using panel data analysis we detect among others a cross-sectional influence of bond liquidity measures and find a significant impact of the general level of credit risk on the time series variation of the valuation difference.