IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/12-77.html
   My bibliography  Save this paper

CDS Spreads in European Periphery; Some Technical Issues to Consider

Author

Listed:
  • Manmohan Singh
  • Mohsan Bilal

Abstract

This paper looks at some technical issues when using CDS data, and if these are incorporated, the analysis or regression results are likely to benefit. The paper endorses the use of stochastic recovery in CDS models when estimating probability of default (PD) and suggests that stochastic recovery may be a better harbinger of distress signals than fixed recovery. Similarly, PDs derived from CDS data are risk-neutral and may need to be adjusted when extrapolating to real world balance sheet and empirical data (e.g. estimating banks losses, etc). Another technical issue pertains to regressions trying to explain CDS spreads of sovereigns in peripheral Europe - the model specification should be cognizant of the under-collateralization aspects in the overall OTC derivatives market. One of the biggest drivers of CDS spreads in the region has been the CVA teams of the large banks that hedge their exposure stemming from derivative receivables due to non-posting of collateral by many sovereigns (and related entities).

Suggested Citation

  • Manmohan Singh & Mohsan Bilal, 2012. "CDS Spreads in European Periphery; Some Technical Issues to Consider," IMF Working Papers 12/77, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/77
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=25777
    Download Restriction: no

    Citations

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


    Cited by:

    1. Tola, Albi & Wälti, Sébastien, 2015. "Deciphering financial contagion in the euro area during the crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 108-123.
    2. International Monetary Fund, 2012. "Euro Area Policies; 2012 Article IV Consultation: Selected Issues Paper," IMF Staff Country Reports 12/182, International Monetary Fund.
    3. repec:eee:jimfin:v:79:y:2017:i:c:p:174-188 is not listed on IDEAS

    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:imf:imfwpa:12/77. See general 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: (Jim Beardow) or (Hassan Zaidi). General contact details of provider: http://edirc.repec.org/data/imfffus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.