IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

An Empirical Comparison of Default Swap Pricing Models

Listed author(s):
  • Patrick Houweling

    ()

    (Erasmus University Rotterdam)

  • Ton Vorst

    ()

    (VU University Amsterdam)

In this paper we compare market prices of credit default swaps with model prices. We showthat a simple reduced form model with a constant recovery rate outperforms the market practice ofdirectly comparing bonds' credit spreads to default swap premiums. We find that the model workswell for investment grade credit default swaps, but only if we use swap or repo rates as proxy fordefault-free interest rates. This indicates that the government curve is no longer seen as thereference default-free curve. We also show that the model is insensitive to the value of theassumed recovery rate.

If 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.

File URL: http://papers.tinbergen.nl/02004.pdf
Download Restriction: no

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-004/2.

as
in new window

Length:
Date of creation: 22 Jan 2002
Handle: RePEc:tin:wpaper:20020004
Contact details of provider: Postal:
Gustav Mahlerplein 117, 1082 MS Amsterdam

Phone: +31 (0)20 598 4580
Web page: http://www.tinbergen.nl/
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20020004. 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: (Tinbergen Office +31 (0)10-4088900)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.