Tail Return Analysis of Bear Stearns Credit Default Swaps

Liuling Li () and Bruce Mizrach

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: We compare several models for Bear Stearns' credit default swap spreads estimated via a Markov chain Monte Carlo algorithm. The Bayes Factor selects a CKLS model with GARCH-EPD errors as the best model. This model captures the volatility clustering and extreme tail returns of the swaps during the crisis. Prior to November 2007, only four months ahead of Bear Stearns' collapse though, the swap spreads were indistinguishable statistically from the risk free rate.

Keywords: Bear Stearns; credit default swap; Bayesian analysis; exponential power distribution (search for similar items in EconPapers)
JEL-codes: C11 G13 G24 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-03-10
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Tail return analysis of Bear Stearns' credit default swaps (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201003

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