Valuation of Systematic Risk in the Cross-Section of Credit Default Swap Spreads

Sebastian Lohr, Arndt Claussen & Daniel Rosch
During the global financial crisis (GFC), there was an apparent mismatch between credit ratings and related default risks. This was specifically evident in the credit default swap (CDS) market, where spreads on higher-rated credits widened to a greater extent than those on lower-rated credits. This paper analyses the pricing of systematic risk factors in CDS contracts. It further examines whether contract-specific sensitivities to systematic risk factors are priced into swap contracts by controlling for individual...
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