An empirical analysis of the CDX index and its tranches
The desire of market participants to go long or short a portfolio of corporate credits led to the introduction of various types of indices of credit default swaps. In this article, we empirically investigate the relationships between the spreads of the North America CDX index and its tranches and their theoretical determinants. We find (1) support for a number of results predicted by the structural models used in credit risk modelling, such as the Merton model and (2) that CDX spreads are highly responsive to microstructure variables but not to macroeconomic variables.
Authors: Frank J. Fabozzi, Yichen Wang, Shih‐Kuo Yeh, Ren‐Raw Chen
Citations: 2
Published: 2008-12-17T00:00:00.000Z
Why It Matters
Venue: Applied Economics Letters. Year: 2008. Citations: 2. Abstract signal: The desire of market participants to go long or short a portfolio of corporate credits led to the introduction of various types of indices of credit default swaps. In this article, we empirically investigate the relation...
Abstract
The desire of market participants to go long or short a portfolio of corporate credits led to the introduction of various types of indices of credit default swaps. In this article, we empirically investigate the relationships between the spreads of the North America CDX index and its tranches and their theoretical determinants. We find (1) support for a number of results predicted by the structural models used in credit risk modelling, such as the Merton model and (2) that CDX spreads are highly responsive to microstructure variables but not to macroeconomic variables.
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