Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/193522 
Authors: 
Year of Publication: 
2016
Series/Report no.: 
ESRB Working Paper Series No. 15
Publisher: 
European Systemic Risk Board (ESRB), European System of Financial Supervision, Frankfurt a. M.
Abstract: 
This paper measures the joint default risk of financial institutions by exploiting information about counterparty risk in credit default swaps (CDS). A CDS contract written by a bank to insure against the default of another bank is exposed to the risk that both banks default. From CDS spreads we can then learn about the joint default risk of pairs of banks. From bond prices we can learn the individual default probabilities. Since knowing individual and pairwise probabilities is not sufficient to fully characterize multiple default risk, I derive the tightest bounds on the probability that many banks fail simultaneously.
Subjects: 
credit default swaps
counterparty risk
default risk
simultaneous failures
JEL: 
G21
E44
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-95081-42-0
Document Type: 
Working Paper

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