Extracting the sovereigns’ CDS market hierarchy: A correlation-filtering approach

Carlos León, Karen Leiton and Jhonatan Pérez
Authors registered in the RePEc Author Service: Jhonatan Villalobos ()

Physica A: Statistical Mechanics and its Applications, 2014, vol. 415, issue C, 407-420

Abstract: This paper employs correlation-into-distance mapping techniques and a minimal spanning tree-based correlation-filtering methodology on 36 sovereign CDS spread time-series in order to identify the sovereigns’ informational hierarchy. The resulting hierarchy (i) concurs with sovereigns’ eigenvector centrality; (ii) confirms the importance of geographical and credit rating clustering; (iii) identifies Russia, Turkey and Brazil as regional benchmarks; (iv) reveals the idiosyncratic nature of Japan and United States; (v) confirms that a small set of common factors affects the system; (vi) suggests that lower-medium grade rated sovereigns are the most influential, but also the most prone to contagion; and (vii) suggests the existence of a “Latin American common factor”.

Keywords: Sovereign risk; Correlation-filtering; Credit default swap; Clustering; Hierarchy (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Extracting the sovereigns’ CDS market hierarchy: a correlation-filtering approach (2013)
Working Paper: Extracting the sovereigns´ CDS market hierarchy: a correlation-filtering approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:415:y:2014:i:c:p:407-420

DOI: 10.1016/j.physa.2014.08.020

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