An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 02 February 2004

Working Paper No. 211 
By Roberto Blanco, Simon Brennan and Ian W Marsh

This paper analyses the behaviour of credit default swaps (CDS) for a sample of firms and finds support for the theoretical equivalence of CDS prices and credit spreads. When this is  violated, the CDS price can be viewed as an upper bound on the price of credit risk, while the spread provides a lower bound. The paper shows that the CDS market is the main forum for credit risk price discovery and that CDS prices are better integrated with firm-specific variables in the short run. Both markets equally reflect these factors in the long run, and this is primarily brought about by bond market adjustment.

PDF An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps 

Other papers

Give your feedback

Was this page useful?
Yes
No
Add your details...