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Overpricing in Emerging Market Credit-Default-Swap Contracts: Some Evidence from Recent Distress Cases
Author:
Mr. Jochen R. Andritzky
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and
Mr. Manmohan Singh
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Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 125
Language:
English
Publication Date:
01 Jun 2005
DOI:
https://doi.org/10.5089/9781451861440.001
ISBN:
9781451861440
ISSN:
1018-5941
Pages:
13
Keywords:
WP; CDS; CDS contract; bond; price; value
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Since recent debt restructurings that constitute credit events have been more frequent than outright defaults, sovereign bond prices may not collapse during distress. In this case, the likely high recovery values after restructuring suggest that the cost of credit-default-swap (CDS) contracts to the buyer (as measured by CDS spreads) may be higher than warranted. We estimate the extent of such overpricing by using the cheapest-to-deliver (CTD) bond as a proxy for the recovery-value assumption.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2005: Issue 125