IDEAS home Printed from https://ideas.repec.org/p/cte/wbrepe/wb110201.html
   My bibliography  Save this paper

Pairing market risk with credit risk

Author

Listed:
  • Figuerola-Ferretti, Isabel
  • Paraskevopoulos, Ioannis

Abstract

This paper uses an exclusive proprietary data set of European Credit Derivatives and VIX markets, covering a sample of 5 to 7 years, to study the nature of the link between credit risk and market risk, widely acknowledged in the academic literature. This allows us to establish cointegration in the VIX and iTraxx/CDS markets in a framework where arbitrageurs exploit temporary equilibrium mispricing following pairs strategies. Expected profits, defined in terms of VECM parameters, are positive for all VIX-iTraxx pairs strategies considered. Markets are integrated in that price discovery on both sides of the Atlantic reflect the same underlying information with predominant price leadership of the VIX market over the European CDS market.

Suggested Citation

  • Figuerola-Ferretti, Isabel & Paraskevopoulos, Ioannis, 2011. "Pairing market risk with credit risk," DEE - Working Papers. Business Economics. WB wb110201, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    • Handle: RePEc:cte:wbrepe:wb110201
    as

    Download full text from publisher

    File URL: https://e-archivo.uc3m.es/bitstream/handle/10016/10194/wb110201.pdf?sequence=5
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Balcilar, Mehmet & Hammoudeh, Shawkat & Toparli, Elif Akay, 2018. "On the risk spillover across the oil market, stock market, and the oil related CDS sectors: A volatility impulse response approach," Energy Economics, Elsevier, vol. 74(C), pages 813-827.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cte:wbrepe:wb110201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ana Poveda (email available below). General contact details of provider: http://www.business.uc3m.es/es/index .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.