THE DETERMINANTS OF CREDIT DEFAULT SWAP RATES: AN EXPLANATORY STUDY

Fathi Abid () and Nader Naifar
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Fathi Abid: University of Sfax, UR: MO.DES.FI, Tunisia, Faculty of Business and Economics, Road of the Airport Km 4, Tunisia

International Journal of Theoretical and Applied Finance (IJTAF), 2006, vol. 09, issue 01, 23-42

Abstract: The aim of this paper is to explain empirically the determinants of credit default swap rates using a linear regression. We document that the majority of variables, detected from the credit risk pricing theories, explain more than 60% of the total level of credit default swap. These theoretical variables are credit rating, maturity, riskless interest rate, slope of the yield curve and volatility of equities. The estimated coefficients for the majority of these variables are consistent with theory and they are significant both statistically and economically. We conclude that credit rating is the most determinant of credit default swap rates.

Keywords: Credit derivatives; credit risk; rating; market variables (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (27)

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DOI: 10.1142/S0219024906003445

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