Constantinou, N and Vinogradov, D and Takeyama, A (2010) Do CDS spreads reflect default risks? Evidence from UK bank bailouts. UNSPECIFIED. EBS Working Papers, Colchester.

Preview

Text WP2010 - NConstantinou CDS.pdf Download (702kB) | Preview

Abstract

CDS spreads are generally considered to reflect the credit risks of their reference entities. However, CDS spreads of the major UK banks remained relatively stable in response to the recent credit crisis. We suggest that this can be explained by changes in loss given default (LGD). To obtain the result we first derive the probabilities of default from stock option prices and then determine the LGD consistent with actual CDS spreads. Our results reveal a significant decrease in the LGD of bailed out banks over the observed period in contrast to banks which were not bailed out and non-financial companies.

Item Type:	Monograph (UNSPECIFIED)
Uncontrolled Keywords:	Credit default swap (CDS), Loss given default (LGD), Volatility surface
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions:	Faculty of Social Sciences > Essex Business School
Depositing User:	Users 161 not found.
Date Deposited:	02 Jan 2014 13:06
Last Modified:	19 Dec 2018 22:16
URI:	http://repository.essex.ac.uk/id/eprint/8111

Actions (login required)

View Item