Article ID Journal Published Year Pages File Type
5089246 Journal of Banking & Finance 2013 16 Pages PDF
Abstract
► We use a factor model in order to decompose CDS into default, liquidity and correlation components. ► We calibrate the model to CDS and bonds. ► We find that sovereign CDS spreads are highly impacted by liquidity risk. ► We find that sovereign bond spreads are less subject to liquidity friction. ► Sovereign bond spreads represent a better proxy for sovereign default risk than CDS spreads.
Keywords
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Preview
Do sovereign credit default swaps represent a clean measure of sovereign default risk? A factor model approach
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