Healthy... Distress... Default

Zura Kakushadze

Papers from arXiv.org

Abstract: We discuss a simple, exactly solvable model of stochastic stock dynamics that incorporates regime switching between healthy and distressed regimes. Using this model, which is analytically tractable, we discuss a way of extracting expected returns for stocks from realized CDS spreads, essentially, the CDS market sentiment about future stock returns. This alpha/signal could be useful in a cross-sectional (statistical arbitrage) context for equities trading.

Date: 2019-10, Revised 2019-10
New Economics Papers: this item is included in nep-rmg
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Published in Journal of Risk & Control 6(1) (2019) 113-119, Invited Editorial

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1910.08531

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