Skip to main content

Trading strategies with implied forward credit default swap spreads

Leccadito, Arturo, Tunaru, Radu, Urga, Giovanni (2015) Trading strategies with implied forward credit default swap spreads. Journal of Banking and Finance, . pp. 361-375. ISSN 0378-4266. (doi:10.1016/j.jbankfin.2015.04.018) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
Official URL
http://www.dx.doi.org/10.1016/j.jbankfin.2015.04.0...

Abstract

Credit default risk for an obligor can be hedged with either a credit default swap (CDS) or a constant maturity credit default swap (CMCDS). We find strong evidence of persistent differences in the hedging cost associated with the two comparable contracts. Between 2001 and 2006, it would have been more profitable to sell CDS and buy CMCDS while after the crisis between 2008 and 2013 the opposite strategy was profitable. Panel data tests indicate that for our sample period the implied forward CDS rates are unbiased estimates of future spot CDS rates. The changes in the company implied volatility is the main determinant of trading inefficiencies, followed by the changes in GDP and in the interest rates before the crisis, and the changes in sentiment index and in the VIX after the crisis.

Item Type: Article
DOI/Identification number: 10.1016/j.jbankfin.2015.04.018
Uncontrolled keywords: Statistical arbitrage; Forward credit spreads; Convexity adjustment; Forward rate unbiasedness hypothesis; Panel data
Subjects: H Social Sciences > HA Statistics > HA33 Management Science
H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Radu Tunaru
Date Deposited: 12 Oct 2015 12:55 UTC
Last Modified: 29 May 2019 16:07 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/50883 (The current URI for this page, for reference purposes)
  • Depositors only (login required):