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Study of Consistency of Bond and CDS Quotes

Author

Listed:
  • Marat Kurbangaleev

    (National Research University Higher School of Economics)

  • Victor Lapshin

    (National Research University Higher School of Economics)

  • Sergey N. Smirnov

    (National Research University Higher School of Economics)

Abstract

In this paper, we study the consistency of bonds and CDS quotes data within a widely accepted credit risk pricing framework, allowing for non-trivial term structures of risk-free interest rates and default intensities. We propose an approach to test this consistency and a procedure to deal with inconsistencies. Our approach is model-independent and does not rely on any term structure fitting method. It also allows us to assess the precision of constructing risk-free yield term structure can be estimated for a given bond and CDS quotes set. We apply the proposed approach to euro zone sovereign bond and CDS data, and demonstrate that, in general, bond/CDS quotes are typically inconsistent across issuers and require filtration. However, our findings suggest grouping the euro zone sovereign issuers according to the group-level internal consistency

Suggested Citation

  • Marat Kurbangaleev & Victor Lapshin & Sergey N. Smirnov, 2015. "Study of Consistency of Bond and CDS Quotes," HSE Working papers WP BRP 43/FE/2015, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:43/fe/2015
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    feasibility band; data consistency; risk-free interest rates; term structure of credit spreads; sovereign default risk; euro zone; defaultable bond; credit default swa;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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