Recovery Risk in Credit Default Swap Premia (eBook)

Timo Schläfer (Autor)

eBook Download: PDF

2011 | 2011
XIX, 112 Seiten
Betriebswirtschaftlicher Verlag Gabler
978-3-8349-6666-7 (ISBN)

Infos

Timo Schläfer exploits the fact that differently-ranking debt instruments of the same issuer face identical default risk but different default-conditional recovery rates. He shows that this allows isolating recovery risk without any of the rigid assumptions employed by priors and implements his approach using credit default swap data.

Dr. Timo Schläfer completed his doctoral thesis under the supervision of Prof. Dr. Marliese Uhrig-Homburg at the Chair of Financial Engineering and Derivatives at the Karlsruhe Institute of Technology. He works in the investment banking industry.

Inhalt

Preface 6
Table of Contents 7
List of Figures 10
List of Tables 11
List of Abbreviations 12
List of Symbols 13
1 Introduction 16
2 Related Literature 20
2.1 Characteristics of Physical Recovery Rates 20
2.2 On the Estimation of Implied Recovery Rates 23
2.2.1 The Identification Problem 23
2.2.2 A Review of Earlier Studies 26
3 A New Approach to Estimating Market-Implied Recovery Rates 33
3.1 A Default-Free Metric of Implied Recovery 33
3.2 The Link to Capital Structure 35
3.3 The Implied Probability Distribution of Recovery 37
4 A Review of Appropriable Credit Derivatives 40
4.1 Credit Default Swaps on Corporate Debt 40
4.2 Leveraged Loans and Bonds 43
4.2.1 Origination, Information, and Transferability 44
4.2.2 The Structure of Leveraged Loans 45
4.2.3 Collateral and Covenants 46
4.2.4 Coupons and Prepayment 47
4.3 Standard Terms of Single-Name Credit Default Swaps 48
4.3.1 Framework Documentation 48
4.3.2 Investors’ Requirements 50
4.3.3 Reference Entity and Reference Obligation 50
4.3.4 Contract Cancellation 53
4.3.5 Credit Events 54
4.4 Key Topics Revisited 59
5 Implementation and Results 64
5.1 Data and Descriptive Statistics 64
5.1.1 Construction of Samples 64
5.1.2 Credit Default Swap Premia 66
5.1.3 Capital Structure Data 68
5.2 Empirical Specification 71
5.2.1 The Ratio of Premia 71
5.2.2 Linking the Implied Distribution to Economic Factors 74
5.2.3 Calibration Results 77
5.3 Estimation Results of Market-Implied Recovery Rates 79
5.3.1 Implied Firm-Wide and Instrument-Specific Recovery Rates 79
5.3.2 The Impact of Debt Cushion 82
5.3.3 The Impact of Changes in the Economic Environment 84
5.3.4 The Relation to Ratings 85
5.4 Robustness 87
5.4.1 Alternative Parameterization 87
5.4.2 Sample-Specific Calibration 89
5.4.3 Risk Aversion in Implied Recovery Rates 90
5.5 Application: Deducing the Implied Probability of Default 93
5.5.1 A Simplistic Approach 93
5.5.2 The Relation to Implied Expected Recovery Rates 96
5.5.3 Risk Aversion in the Implied Probability of Default 97
6 Conclusion and Outlook 100
Appendices 103
A Supremum and Infimum Standard Deviations 103
A.I Beta Distribution 103
A.II Transformed Normal Distribution 104
A.III Quadratic Distribution 107
B Descriptive Statistics by Firm 109
C The Variance of Implied Expected Recovery Rates 113
D Implied Recovery Rates by Firm 114
E Implied Recovery Rates by Firm – Sample-Specific Calibration 116
F Implied One-Year Probabilities of Default by Firm 118
References 119

Produkt-Details

• Erscheint lt. Verlag: 18.5.2011
• Zusatzinfo: XIX, 112 p. 21 illus.
• Verlagsort: Wiesbaden
• Sprache: englisch
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Planung / Organisation
• Schlagworte: credit risk • Default rate • Loan-only credit default swap • Recovery rate • Risk premia
• ISBN-10: 3-8349-6666-5 / 3834966665
• ISBN-13: 978-3-8349-6666-7 / 9783834966667