Tail return analysis of Bear Stearns' credit default swaps

Liuling Li () and Bruce Mizrach

Economic Modelling, 2010, vol. 27, issue 6, 1529-1536

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 best 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; swaps; Bayesian; analysis; Exponential; power; distribution (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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Working Paper: Tail Return Analysis of Bear Stearns Credit Default Swaps (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:27:y:2010:i:6:p:1529-1536

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