S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2005:44:
Using Credit Derivatives to Compute Market-Wide Default Probability Term Structures

Hans Byström ()

Abstract: In this paper we suggest a simple way of backing out market-wide risk-neutral default probability (and default density) distributions from quoted credit default swap (CDS) index spreads. We apply the approach to two market-wide European portfolios represented by two frequently traded iTraxx Europe CDS indexes, and the resulting analytical default probability term structures are updated on a daily basis. We believe such instantaneous default probability term structures to be useful not only for risk managers in commercial banks but also for hedge funds and others involved in speculation and arbitrage as well as for supervisory authorities like central banks in their quest for financial stability.

Keywords: iTraxx; credit default swap index; default probability; term structure; (follow links to similar papers)

JEL-Codes: C20; G33; (follow links to similar papers)

14 pages, October 25, 2005

Download Statistics


This paper is published as:
Byström, Hans, (2005), 'Using Credit Derivatives to Compute Market-Wide Default Probability Term Structures', Journal of Fixed Income, Vol. 15, December, No. 3, pages 34-41



Questions (including download problems) about the papers in this series should be directed to David Edgerton ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:lunewp:2005_044 This page was generated on 2014-12-14 19:24:53