Counterparty credit risk and the credit default swap market

• 成果类型: Article
• 署名作者: Arora, Navneet; Gandhi, Priyank; Longstaff, Francis A.
• 署名单位: University of California System; University of California Los Angeles; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.10.001
• 发表日期: 2012
• 页码: 280-293
• 关键词: Counterparty credit risk; Credit Default Swaps; Collateralization

摘要

Counterparty credit risk has become one of the highest-profile risks facing participants in the financial markets. Despite this, relatively little is known about how counterparty credit risk is actually priced. We examine this issue using an extensive proprietary data set of contemporaneous CDS transaction prices and quotes by 14 different CDS dealers selling credit protection on the same underlying firm. This unique cross-sectional data set allows us to identify directly how dealers' credit risk affects the prices of these controversial credit derivatives. We find that counterparty credit risk is priced in the CDS market. The magnitude of the effect, however, is vanishingly small and is consistent with a market structure in which participants require collateralization of swap liabilities by counterparties. (C) 2011 Elsevier B.V. All rights reserved.