Do Rare Events Explain CDX Tranche Spreads?

• 成果类型: Article
• 署名作者: Seo, Sang Byung; Wachter, Jessica A.
• 署名单位: University of Houston System; University of Houston; University of Pennsylvania
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12705
• 发表日期: 2018
• 页码: 2343-2383
• 关键词: COLLATERALIZED DEBT OBLIGATIONS; capital structure; habit formation; equity premium; credit spreads; term structure; RISK; disasters; options; volatility

摘要

We investigate whether a model with time-varying probability of economic disaster can explain prices of collateralized debt obligations. We focus on senior tranches of the CDX, an index of credit default swaps on investment grade firms. These assets do not incur losses until a large fraction of previously stable firms default, and thus are deep out-of-the money put options on the overall economy. When calibrated to consumption data and to the equity premium, the model explains the spreads on CDX tranches prior to and during the 2008 to 2009 crisis.