DETERMINANTS OF CREDIT DEFAULT SWAP SPREADS: A REGIME-SHIFTING APPROACH
(2011)Department of Business Administration
- Abstract
- This thesis investigates the theoretical determinants of the credit default swap spread by employing a regime-shifting approach. The variables that are examined are leverage, stock return, volatility and interest rate. A sample of 47 companies was selected with daily mid-market quotes between Jan 2008-Dec 2010 in order to proxy the CDS spread. The research was conducted with the use of a linear regression analysis and the Markov Switching model. The results indicate problems with parameter stability justifying the implementation of the Markov model. We discover a positive relationship between the interest rate and the spread, insignificance of implied volatility and a mean-reverting behavior of the spread.
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2156759
- author
- Hewavitharana, Dilan and Rahmqvist, Johan
- supervisor
- organization
- year
- 2011
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- credit default swap, markov switching model, principal component, determinants, regime, spread, Management of enterprises, Företagsledning, management
- language
- Swedish
- id
- 2156759
- date added to LUP
- 2011-06-01 00:00:00
- date last changed
- 2012-04-02 18:52:07
@misc{2156759, abstract = {{This thesis investigates the theoretical determinants of the credit default swap spread by employing a regime-shifting approach. The variables that are examined are leverage, stock return, volatility and interest rate. A sample of 47 companies was selected with daily mid-market quotes between Jan 2008-Dec 2010 in order to proxy the CDS spread. The research was conducted with the use of a linear regression analysis and the Markov Switching model. The results indicate problems with parameter stability justifying the implementation of the Markov model. We discover a positive relationship between the interest rate and the spread, insignificance of implied volatility and a mean-reverting behavior of the spread.}}, author = {{Hewavitharana, Dilan and Rahmqvist, Johan}}, language = {{swe}}, note = {{Student Paper}}, title = {{DETERMINANTS OF CREDIT DEFAULT SWAP SPREADS: A REGIME-SHIFTING APPROACH}}, year = {{2011}}, }