Minerva Investment Management Society

Investment Outlook

Markets & Alternatives Research - Credit Default Swaps

· Investment Research

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Summary

Credit Default Swaps are credit or entity derivatives that offer insurance in case of default of an underlying bond. In this report a correlation analysis of CDS spread and the main asset classes is conducted. Furthermore, a discrete time variant of the Hull pricing model is implemented to obtain the historical default probabilities implied in the market prices of the CDS on four countries debt: Greece, Italy, Spain, and France.

The historical data is then implemented to build a forecast model based on a Random Walk model. For each country we applied a Monte Carlo simulation to default probabilities and risk-free rates, obtaining a future distribution of the CDS spread.

Authors

  • Marco UggeriHead of Markets and Alternatives Research
  • Dionysia BalafaMarkets and Alternatives Research Analyst
  • Antonio MessinaMarkets and Alternatives Research Analyst
  • Matteo NegriniMarkets and Alternatives Research Analyst
  • Tommaso BeverinaHead of Research Area

Details

Published
2 December 2021
Division
Investment Research
Type
Investment Outlook
Pages
9
Authors
5

Cite this report

Minerva Investment Management Society (2021). Markets & Alternatives Research - Credit Default Swaps. Investment Research. https://minervaims.org/archive/markets-and-alternatives-research-credit-default-swaps-2021

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