Disentangling the Information Content of Government Bonds and Credit Default Swaps: An Empirical Analysis on Sovereigns and Banks

Frontiers in Applied Mathematics and Statistics

Rocco, Marco¹  Bianchi, Michele L.² 

[1] Directorate General Micro-Prudential Supervision IV, European Central Bank, Frankfurt am Main, Germany;Regulation and Macroprudential Analysis Directorate, Bank of Italy, Rome, Italy

关键词: Gaussian Ornstein-Uhlenbeck processes;    bond pricing;    CDS pricing;    sovereign risk;    CDS-bond basis;    maximum likelihood estimation;   

DOI  :  10.3389/fams.2016.00022

学科分类：数学（综合）

来源: Frontiers

【 摘 要 】

We propose a multi-factor Gaussian model to analyze the dynamics of sovereign bond yields, as well as sovereign and banks CDS quotes. This paper has three objectives (all of them with relevant implications from a supervisory perspective): (1) disentangling the credit risk component of sovereign bonds from the interest rate component; (2) exploring the sovereign CDS-bond basis, i.e. the di□erence between sovereign CDS quotes and the corresponding bond yields; (3) inferring from CDS quotes the idiosyncratic component of a bank credit risk and analyzing its relation with sovereign risk. We cast the model in a state-space form with linear measurement function. To calibrate the model we consider a maximum likelihood estimation together with a Kalman □lter method in which both the gradient vector and the Hessian matrix to be used in the optimization can be computed in closed form.

【 授权许可】

CC BY