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Default and Recovery Implicit in the Term Structure of Sovereign CDS Spreads
Abstract
This paper explores the nature of default arrival and recovery implicit in the term structures of sovereign CDS spreads. We argue that term structures of spreads reveal not only the arrival rates of credit events , but also the loss rates given credit events. Applying our framework to Mexico, Turkey, and Korea, we show that a single‐factor model with following a lognormal process captures most of the variation in the term structures of spreads. The risk premiums associated with unpredictable variation in are found to be economically significant and co‐vary importantly with several economic measures of global event risk, financial market volatility, and macroeconomic policy.
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Cited by
How Sovereign Is Sovereign Credit Risk?
Longstaff, F. A., Pan, J., Pedersen, L. H., & Singleton, K. J. (2011) · American Economic Journal: Macroeconomics · doi:10.1257/mac.3.2.75 · Cited by 1,083
Self-citationAn Empirical Analysis of the Pricing of Collateralized Debt Obligations
LONGSTAFF, F. A., & RAJAN, A. (2008) · The Journal of Finance · doi:10.1111/j.1540-6261.2008.01330.x · Cited by 299
A Global Version of Samuelson's Dictum
Xiao, Y., Yan, H., & Zhang, J. (2022) · American Economic Review: Insights · doi:10.1257/aeri.20210186 · Cited by 8
Metadata
- Authors
- PAN, J., & SINGLETON, K. J.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2008-09-10
- Volume
- 63
- Issue
- 5
- Pages
- 2345-2384
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2099366283
- Cited by
- 804
- References
- 0
- FWCI
- 75.24
- Type
- journal article
- Language
- en
- Open access
- closed
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- PAN, J., & SINGLETON, K. J. (2008). Default and Recovery Implicit in the Term Structure of Sovereign CDS Spreads. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.2008.01399.x
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
