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CreditGrades and the iTraxx CDS index market

På svenska

Author

Summary, in English

In the study reported, the CreditGrades model was used to calculate credit default swap spreads and the spreads were compared with empirically observed CDS spreads for eight iTraxx indices covering Europe. Theoretical and empirical spread changes were found to be significantly correlated. Also, lagged theoretical spread changes were correlated with current iTraxx spread changes. The correlations indicate a close relationship between the stock market and the CDS market and also indicate some predictive ability of the CreditGrades model. Simple trading strategies based on the autocorrelation and predictive ability of the model produced positive profits, before trading costs, when trading was within the bid-ask spread.

Publishing year

2006

Language

English

Pages

65-76

Publication/Series

Financial Analysts Journal

Volume

62

Issue

6

Document type

Journal article

Publisher

CFA Institute (Chartered Financial Analysts Institute)

Topic

  • Economics

Status

Published

ISBN/ISSN/Other

  • ISSN: 0015-198X