An Analysis of CDS Market Liquidity by the Hawkes Process

Masahiko Egami, Yasuyuki Kato and Tomochika Sawaki

Discussion papers from Graduate School of Economics Project Center, Kyoto University

Abstract: We study the credit default swap (CDS) markets in the U.S. and Japan, focusing on bid-ask spreads which are closely related to the liquidity of the markets. Since bid-ask spreads dramatically surged during the financial crisis (2008-2009) and the market became very illiquid, it is crucially important to investigate how bid-ask spreads fluctuate. In this paper, not only do we make dynamic analysis of the bid-ask spreads in both countries but propose a model to predict bid-ask spreads via the self-exciting intensity process (the Hawkes process).

Keywords: CDS contract; liquidity; bid-ask spread; the Hawkes process; self-exciting processes; financial crisis; credit risk (search for similar items in EconPapers)
JEL-codes: G10 G17 G21 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013-06
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Persistent link: https://EconPapers.repec.org/RePEc:kue:dpaper:e-13-001

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