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CreditGrades and the iTraxx CDS index market

Byström, Hans LU (2006) In Financial Analysts Journal 62(6). p.65-76
Abstract
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.
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Financial Analysts Journal
volume
62
issue
6
pages
65 - 76
publisher
CFA Institute (Chartered Financial Analysts Institute)
external identifiers
  • wos:000242629500012
  • scopus:33845743944
ISSN
0015-198X
DOI
10.2469/faj.v62.n6.4354
language
English
LU publication?
yes
id
b39c63b2-70a5-4e57-8681-5339db0565db (old id 683738)
date added to LUP
2016-04-01 16:23:58
date last changed
2020-12-08 04:47:45
@article{b39c63b2-70a5-4e57-8681-5339db0565db,
  abstract     = {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.},
  author       = {Byström, Hans},
  issn         = {0015-198X},
  language     = {eng},
  number       = {6},
  pages        = {65--76},
  publisher    = {CFA Institute (Chartered Financial Analysts Institute)},
  series       = {Financial Analysts Journal},
  title        = {CreditGrades and the iTraxx CDS index market},
  url          = {http://dx.doi.org/10.2469/faj.v62.n6.4354},
  doi          = {10.2469/faj.v62.n6.4354},
  volume       = {62},
  year         = {2006},
}