Ambiguity, Volatility, and Credit Risk

• 成果类型: Article
• 署名作者: Augustin, Patrick; Izhakian, Yehuda
• 署名单位: McGill University; City University of New York (CUNY) System; Baruch College (CUNY)
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz082
• 发表日期: 2020
• 页码: 1618
• 关键词: CORPORATE YIELD SPREADS; DEFAULT SWAP SPREADS; cross-section; model uncertainty; equity volatility; expected utility; TERM STRUCTURES; OPTION MARKETS; stock returns; INFORMATION

摘要

We explore the implications of ambiguity for the pricing of credit default swaps (CDSs). A model of heterogeneous investors with independent preferences for ambiguity and risk shows that, because CDS contracts are assets in zero net supply, the net credit risk exposure of the marginal investor determines the sign of the impact of ambiguity on CDS spreads. We find that ambiguity has an economically significant negative impact on CDS spreads, on average, suggesting that the marginal investor is a net buyer of credit protection. A 1-standard-deviation increase in ambiguity is estimated to decrease CDS spreads by approximately 6%.