Impact of Government Bonds Spreads on Credit Derivatives: Analysis of Increasing Spreads Developments within the European Area (BestMasters)

Verena Anna Berger investigates the question to what extent credit default swap spreads are impacted by an increase of government bond yields within the European area. In the first step, these spreads are computed with the help of the Hull-White model to demonstrate the theoretical calculation. The main findings which are calculated by using the Fontana-Scheicher model show that a negative impact on credit default swap spreads is observed based on the analysed data. However, there is high variation between the analysed countries so that a country-specific evaluation instead of a general review is recommended by the author. Contents " Theoretical underpinnings " Modelling credit default swap prices " Simulation of government bond spread increase Target Groups " Lecturers and students of finance, asset management " Experts in asset management, sovereign bond markets and credit default swaps The Author Verena Anna Berger graduated from the University of Applied Science Vienna with a Master of Arts in Quantitative Asset and Risk Management. As a risk manager, she is currently employed by an investment company.-- Provided by publisher Acknowledgements 6 Institute’s profile 7 Table of Contents 8 List of Figures 9 List of Tables 10 List of Abbreviations 12 Abstract 13 1 Introduction 14 1.1 Research questions 15 1.2 Methodology 16 1.3 Structure 17 1.4 Acknowledgment of previous work on the subject 18 2 Theoretical underpinnings 20 2.1 Bonds 20 2.2 Credit derivatives 21 2.3 Spreads in general 26 2.4 Relationship between bond yield differentials and credit default swaps spreads 28 2.5 Models for pricing CDSs 31 3 Modelling credit default swap prices 39 3.1 Classification of models 39 3.2 Classification of data 45 3.3 Implementing models 49 4 Simulation of government bond spread increase 56 4.1 Calibration of model 56 4.2 Simulation with varying increase levels 57 4.3 Simulation with varying interest levels 67 4.4 Simulation with varying interest levels and varying increase levels 71 5 Results 82 6 Concluding remarks 89 References 92 Front Matter ....Pages I-XVII Introduction (Verena Anna Berger)....Pages 1-6 Theoretical underpinnings (Verena Anna Berger)....Pages 7-25 Modelling credit default swap prices (Verena Anna Berger)....Pages 27-43 Simulation of government bond spread increase (Verena Anna Berger)....Pages 45-70 Results (Verena Anna Berger)....Pages 71-77 Concluding remarks (Verena Anna Berger)....Pages 79-81 Back Matter ....Pages 83-85