Extracting information from structured credit markets
AbstractStructured credit instruments offer an insight into markets’ perceptions of the extent of future credit defaults. Claims of different seniorities incur losses only if defaults reach different magnitudes, so their relative value offers an insight into the likelihood of losses being of different severities. This paper matches the traded values of structured credit products by modelling the defaults of the underlying credits and their interdependence. It offers an improvement on the industry-standard ‘Gaussian copula’ model in its ability to capture the ‘tail event’ of multiple firms defaulting together. This allows policymakers to draw better inference as to the likely scale of defaults implied by structured credit prices. It offers an indication of the extent to which defaults are driven by systemic shocks to firms’ balance sheets. It may also be of use to those who trade structured credit products and may offer an improvement in risk management.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 407.
Length: 38 pages
Date of creation: 02 Dec 2010
Date of revision:
Contact details of provider:
Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
Structured credit instruments; systemic risk; asset prices;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-11 (All new papers)
- NEP-BAN-2010-12-11 (Banking)
- NEP-CFN-2010-12-11 (Corporate Finance)
- NEP-FMK-2010-12-11 (Financial Markets)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Publications Team).
If references are entirely missing, you can add them using this form.