tailieunhanh - Fundamentals of Stochastic Filtering with Applications_7

Tham khảo tài liệu 'fundamentals of stochastic filtering with applications_7', kinh tế - quản lý, kinh tế học phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | Credit Default Swaps Filtering the Components 193 from the collapse of the . subprime market. Also during the sample period the most obvious downward trend which is a narrowing of the spread demonstrated in the first nine months before the problems faced by General Motors GM and Ford. Ford and General Motors are two of the world s biggest car companies as recorded by the web site of . GM had 290 billion in outstanding debt and Ford had another 160 for a total of 450 billion. Given the massive size of the auto makersi debt this turbulence seems to have spread across the Atlantic to the European auto sector and thus affected the whole iTraxx. For example the iTraxx Autos 5Y was up basis points from basis points on 5 May 2005 to basis points on 18 May 2005 while iTraxx Europe 5Y raised from basis points to basis points during the same period. Despite this turbulence in the credit derivatives market the overall downward trend in our iTraxx indices during our sample period are observable in our estimation results and a more detailed discussion is given in a later section. Thirdly it is interesting to notice that the spreads between the 5-year maturity and the 10-year maturity gets wider with passing time which may be because the 5-year contract became more actively traded than the 10-year maturity with the development of the CDS market. It also may be the impact of the leverage ratio. The mean-reversion feature Collin-Dufresne and Goldstein 2001 in the leverage ratio can significantly increase the credit spreads of long-term debt but has little impact on the short-term credit spreads since the change in the default boundary in the shortterm is negligible. Fourthly turning to Table to the extent that the spread is a compensation for credit risk it is not surprising that the sub-investment-grade firms are considered riskier by the market. Accordingly the iTraxx Europe Crossover index gives the widest CDS index .