Pairing market risk with credit risk

Figuerola-Ferretti, Isabel; Paraskevopoulos, Ioannis

Publication:
Pairing market risk with credit risk

dc.affiliation.dpto	UC3M. Departamento de Economía de la Empresa	es
dc.contributor.author	Figuerola-Ferretti, Isabel
dc.contributor.author	Paraskevopoulos, Ioannis
dc.contributor.editor	Universidad Carlos III de Madrid. Departamento de Economía de la Empresa
dc.date.accessioned	2012-11-02T11:55:01Z
dc.date.available	2012-11-02T11:55:01Z
dc.date.issued	2011-02
dc.description.abstract	This paper uses an exclusive proprietary data set of European Credit Derivatives and VIX markets, covering a sample of 5 to 7 years, to study the nature of the link between credit risk and market risk, widely acknowledged in the academic literature. This allows us to establish cointegration in the VIX and iTraxx/CDS markets in a framework where arbitrageurs exploit temporary equilibrium mispricing following pairs strategies. Expected profits, defined in terms of VECM parameters, are positive for all VIX-iTraxx pairs strategies considered. Markets are integrated in that price discovery on both sides of the Atlantic reflect the same underlying information with predominant price leadership of the VIX market over the European CDS market.
dc.format.mimetype	text/plain
dc.format.mimetype	application/pdf
dc.identifier.repec	wb110201
dc.identifier.uri	https://hdl.handle.net/10016/10194
dc.identifier.uxxi	DT/0000000858
dc.language.iso	eng
dc.relation.ispartofseries	UC3M Working papers. Business Economics
dc.relation.ispartofseries	11-01
dc.rights	Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRights	open access
dc.rights.uri	http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.eciencia	Empresa
dc.title	Pairing market risk with credit risk
dc.type	working paper	*
dc.type.hasVersion	SMUR	*
dspace.entity.type	Publication