Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144317
Authors: 
De Wit, Jan
Year of Publication: 
2006
Series/Report no.: 
Working Paper Research 104
Abstract: 
Markets for credit default swaps (CDS) and bonds of the same reference entity and maturity are bound by no-arbitrage conditions. Indeed, using a large data set we show that CDS premia and par asset swap spreads are mostly cointegrated. Nonetheless, the average CDS-bond basis (i.e. the difference between both measures) is positive in the period 2004-2005. We detect fourteen different economic basis drivers, which make the basis firm-specific and time-dependent. Furthermore, we describe the basis smile, and illustrate that the average basis is the lowest for five year maturities of corporate credits denominated in euro.
Subjects: 
Bond
Co integration
Credit
Risk Neutrality
JEL: 
C12
C19
C23
G15
G19
Document Type: 
Working Paper

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