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Credit Default Swap Bond Basis Trading Opportunities in Times of Economic Uncertainty in European Financial Market

Troeger, Annemarie LU and Kaur, Anne-Mari LU (2020) NEKN02 20201
Department of Economics
Abstract
We investigated CDS-bond basis trading strategies during five different events, which possibly have caused market uncertainty on the European market. Those events include the peak of the Greek debt crisis (2015), Brexit announcement (2016), French presidential elections (2017), Tariffs on European Union (2018) and COVID-19 crisis (2020). Further, using the companies from two different iTraxx indices, the sample consisted of 10 non-investment grade and 42 investment grade companies. We found that the basis trading was more profitable during the “turbulent” market condition than during selected “calm” periods, outside the event periods. Moreover, even though for some companies both positive and negative basis trading opportunity arose, the... (More)
We investigated CDS-bond basis trading strategies during five different events, which possibly have caused market uncertainty on the European market. Those events include the peak of the Greek debt crisis (2015), Brexit announcement (2016), French presidential elections (2017), Tariffs on European Union (2018) and COVID-19 crisis (2020). Further, using the companies from two different iTraxx indices, the sample consisted of 10 non-investment grade and 42 investment grade companies. We found that the basis trading was more profitable during the “turbulent” market condition than during selected “calm” periods, outside the event periods. Moreover, even though for some companies both positive and negative basis trading opportunity arose, the positive basis trading turned out to be more profitable during the listed events. We also found that the fixed, 1 month holding period outperformed the 2-week fixed and volatility triggered holding period. (Less)
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author
Troeger, Annemarie LU and Kaur, Anne-Mari LU
supervisor
organization
course
NEKN02 20201
year
type
H1 - Master's Degree (One Year)
subject
keywords
CDS-bond spread, Basis Trading, Volatility triggered exit, economic uncertainty
language
English
id
9013719
date added to LUP
2020-08-29 11:21:40
date last changed
2020-08-29 11:21:40
@misc{9013719,
  abstract     = {{We investigated CDS-bond basis trading strategies during five different events, which possibly have caused market uncertainty on the European market. Those events include the peak of the Greek debt crisis (2015), Brexit announcement (2016), French presidential elections (2017), Tariffs on European Union (2018) and COVID-19 crisis (2020). Further, using the companies from two different iTraxx indices, the sample consisted of 10 non-investment grade and 42 investment grade companies. We found that the basis trading was more profitable during the “turbulent” market condition than during selected “calm” periods, outside the event periods. Moreover, even though for some companies both positive and negative basis trading opportunity arose, the positive basis trading turned out to be more profitable during the listed events. We also found that the fixed, 1 month holding period outperformed the 2-week fixed and volatility triggered holding period.}},
  author       = {{Troeger, Annemarie and Kaur, Anne-Mari}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Credit Default Swap Bond Basis Trading Opportunities in Times of Economic Uncertainty in European Financial Market}},
  year         = {{2020}},
}