RT Journal Article
SR Electronic
T1 Using Credit Derivatives to Compute Marketwide Default Probability Term Structures
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 34
OP 41
DO 10.3905/jfi.2005.605422
VO 15
IS 3
A1 Hans N.E. Byström
YR 2005
UL https://pm-research.com/content/15/3/34.abstract
AB This article suggests a simple way of backing out marketwide risk-neutral default probability (and default density) distributions from quoted credit default swap (CDS) index spreads. It applies the approach to two marketwide European portfolios represented by two frequently traded iTraxx Europe CDS indexes, and the resulting analytical default probability term structures are updated on a daily basis. Such instantaneous default probability term structures should be useful not only for risk managers in commercial banks but also for hedge funds and others involved in speculation and arbitrage, as well as for supervisory authorities such as central banks in their quest for financial stability.