Tail Return Analysis of Bear Stearns Credit Default Swaps
AbstractWe compare several models for Bear Stearns' credit default swap spreads estimated via a Markov chain Monte Carlo algorithm. The Bayes Factor selects a CKLS model with GARCH-EPD errors as the best model. This model captures the volatility clustering and extreme tail returns of the swaps during the crisis. Prior to November 2007, only four months ahead of Bear Stearns' collapse though, the swap spreads were indistinguishable statistically from the risk free rate.
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Bibliographic InfoPaper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 201003.
Length: 20 pages
Date of creation: 10 Mar 2010
Date of revision:
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Bear Stearns; credit default swap; Bayesian analysis; exponential power distribution;
Other versions of this item:
- Li, Liuling & Mizrach, Bruce, 2010. "Tail return analysis of Bear Stearns' credit default swaps," Economic Modelling, Elsevier, vol. 27(6), pages 1529-1536, November.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-20 (All new papers)
- NEP-BAN-2010-03-20 (Banking)
- NEP-FMK-2010-03-20 (Financial Markets)
- NEP-RMG-2010-03-20 (Risk Management)
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