EconPapers    
Economics at your fingertips  
 

Assessment of time-varying systemic risk in credit default swap indices: Simultaneity and contagiousness

Geon Ho Choe, So Eun Choi and Hyun Jin Jang

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: This study assesses systemic risk inherent in credit default swap (CDS) indices using empirical and statistical analyses. We define systemic risk in two perspectives: the possibilities of simultaneous and contagious defaults, and then quantify them separately across benchmark models. To do so, we employ a Marshall-Olkin copula model to measure simultaneous default risk, and an interacting intensity-based model to capture contagious default risk. For an empirical test, we collect daily data for the iTraxx Europe CDS index and its tranche prices in the period from 2005 to 2014, and calibrate model parameters varying across time. In addition, we select forecasting models that have minimal prediction errors for the calibrated time series. Finally, we identify significant changes in each dynamic of systemic risk indicator before and after default and downgrade-related episodes that have occurred in the global financial crisis and European sovereign debt crisis.

Keywords: Systemic risk; CDS index; Marshall-Olkin copula; Interacting intensity-based model; Calibration; Forecasting (search for similar items in EconPapers)
JEL-codes: C22 C52 C53 G13 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940818302973
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940818302973

DOI: 10.1016/j.najef.2019.01.004

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-03-09
Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940818302973