A copula-based systemic risk measure: application to investment-grade and high-yield CDS portfolios

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This study investigates the evolution of systemic risk inherent in investment-grade (IG) and high-yield (HY) CDS portfolios and compares the portfolios before and after the global financial crisis. To quantify systemic risk, we propose a novel measure ? the expected default rate (EDR), defined by the average default rate of all institutions conditional upon one institution being in default. We implement the EDR under the one-factor copula framework with various dependence structures. We observe that the HY portfolio contains a higher systemic risk than the IG?s, overall, and the gap between the two widens after Lehman Brothers? default. However, the model discrepancy for IG EDR is higher than that for HY, and for both the IG and HY EDRs, the discrepancies decrease over time.
Publisher
ROUTLEDGE JOURNALS
Issue Date
2020-09
Language
English
Article Type
Article
Citation

APPLIED ECONOMICS LETTERS, v.27, no.15, pp.1264 - 1271

ISSN
1350-4851
DOI
10.1080/13504851.2019.1676867
URI
http://hdl.handle.net/10203/279558
Appears in Collection
MA-Journal Papers(저널논문)
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