An Econometric Analysis of the Determinants of CVA Spreads

Abstract

This article proposes an econometric analysis framework to identify and analyze the determinants of credit value adjustment (CVA) spreads using a sample of 75 North American firms that have available data on credit default swap spreads as of November 30, 2015. The main factors explaining CVA spreads are cash flow growth, asset volatility, leverage, return on assets, credit rating, and the firm’s industrial sector. These factors explain up to 68% of CVA spreads.

TOPICS: Credit default swaps, security analysis and valuation, legal/regulatory/public policy