A Further Look at the Price of Default Risk
The rise of the credit derivatives market has meant that we now can observe rather directly how the market views the price of bearing default risk. In particular, single name credit default swaps (CDSs) provide the credit protection buyer insurance against default by a borrower in that in the event of default by the named firm the CDS buyer will receive par in return for delivering to the CDS seller a bond or note issued by the defaulting firm. The net value of this exchange is the loss given default (LGD) on the delivered security. Prior to default the credit protection buyer pays a periodic premium to the credit protection seller. This CDS spread is determined in a well-developed OTC market that has attracted an increasing number of participants who regularly stand ready to buy or sell CDSs on a wide variety of names for standard terms of 1, 3, 5 years and often longer. Thus the CDS spread is the markets view of the fair price for bearing the risk that the underlying name will default within period covered.
Ronald W. Anderson
London School of Economics and CEPR
国际会议
大连
英文
1-18
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）