Risk management of Credit Default Swap
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Published:
Mar 22, 2017
Updated:
2017-03-22
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2017-03-22 (1)
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Abstract
Credit derivatives are an up to date innovation in financial markets. These financial instrument have a potential to allow enterprises to trade and manage the credit risks and market risks. The striking growth of credit derivatives suggest that participant of financial markets find them to be useful instrument for risk management. The most popular and fundamental credit derivatives is a credit default swaps (CDS). In the paper we detailed the risk management of the credit default swaps and quantified the credit risk of investors in two way: (i) calculate the term structure of default probabilities from the market prices of traded CDS and (ii) calculate prices of CDS from the probability distribution of the time-to-default Â
Keywords: credit risk; credit default swap; risk management
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Spuchlakova, E., & Misankova, M. (2017). Risk management of Credit Default Swap. New Trends and Issues Proceedings on Humanities and Social Sciences, 3(4), 229–234. https://doi.org/10.18844/prosoc.v3i4.1573
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Witzany, J. (2010) Credit risk management and modeling. Vysoka skola ekonomicka v Praze: Nakladatelstvà Oeconomica.
Witzany, J. (2013). Financial derivatives – valuation, hedging and risk management. Vysoka skola ekonomicka v Praze: Nakladatelstvi Oeconomica.
Fabozzi, F. J. (2002) The handbook of financial instruments. Hoboken, New Jersey: John Wiley & Sons Inc.,
Frajtova-Michalikova, K., Kliestik, T. & Musa, H. (2015). Comparison of nonparametric methods for estimating the level of risk in finance, Procedia Economics and finance, 228 – 236,
Gavlakova, P., Valaskova, K. & Dengov, V. (2014). Credit risk and its evaluation, In: 2nd International Conference on Economics and Social Science (ICESS), Advances in Education Research, 104-108, Shenzhen, CHINA, 2014, 2160-1070.
Giesecke, K., Credit risk modeling & valuation: An introduction [online]. (2004, Januar 10) from:http://web.stanford.edu/dept/MSandE/cgibin/people/faculty/giesecke/pdfs/introduction.pdf>.
Grublova, E. (2010). Attitudes to risk and ability to take risky decisions. Ekonomicko-manazerske spektrum, 58-63.
Kliestik, T, Musa, H. & Frajtova-Michalikova M. (2015) Parametric methods for estimating the level of risk in finance, Procedia Economics and finance, 322 – 330.
Kliestik, T., Lyakin, A. N. & Valaskova, K. (2014). Stochastic calculus and modelling in economics and finance, In: 2nd International Conference on Economics and Social Science (ICESS), Advances in Education Research, 161-167.
Kollar, B. & Bartosova B. (2014). Comparison of credit risk measures as an alternative to VaR, In: 2nd International Conference on Social Sciences Research (SSR 2014), Advances in Social and Behavioral Sciences, 167 – 171.
Kollar, B., Valaskova, K & Kramarova, K. (2015). Possibility of using credit grades model as an alternative to traditional structural models, In: 3rd International Conference on Economics and Social Science (ICESS 2015), 53 – 58.
Lipton, A. & Rennie, A. (2013) The Oxford handbook of credit derivatives. Oxford: Oxford University Press.
O'Kane, D. (2008) Modelling single-name and multi-name credit derivatives. WestSussex: John Wiley & Sons Ltd.
Revenda, Z. et al. (2004). Penezni ekonomie a bankovnictvi. Praha: Management Press.
Valaskova, K., Gavlakova, P. & Dengov, V. (2014). Assessing credit risk by Moody's KMV Model, In: 2nd International Conference on Economics and Social Science (ICESS), Advances in Education Research, 40-44.
Wagner, N. (2012). Credit risk models, derivatives, and management. Boca Raton: Chapman & Hall/CRC Press.
Witzany, J. (2010) Credit risk management and modeling. Vysoka skola ekonomicka v Praze: Nakladatelstvà Oeconomica.
Witzany, J. (2013). Financial derivatives – valuation, hedging and risk management. Vysoka skola ekonomicka v Praze: Nakladatelstvi Oeconomica.