A credit default swap is a financial agreement where the CDS buyer makes a series of payments to the seller in order to be hedged against the credit risk of a bond issuer. The CDS spread is the premium paid for this particular insurance, that has become topical during the 2007/08 financial crisis and nowadays with the eurozone situation, in particular the Greek one. In this thesis I try to link the CDS spread with the bond spread, a measure to reflect the additional net yield an investor can earn from a security, compared to a risk-free bond, in order to offset the default risk exposure assumed. The Bond-CDS Basis is the difference of spread, usually measured in basis points, between a CDS and a bond; that means the difference between the premium paid to hedge the credit risk of a entity and the income that the investor receives buying a bond of the same entity. There are periods where that difference is not equal to zero and my study was meant to identify the drivers that make this basis positive or negative, focusing afterwards on the negative basis and its interesting arbitrage opportunities in Credit Trading.
I Credit Default Swap sono contratti con i quali un soggetto, a fronte di pagamenti a favore della controparte, si protegge dal rischio di credito associato ad un determinato emittente obbligazionario. Lo spread del CDS è il valore pagato per questa “polizza assicurativa”, divenuta di attualità con la crisi finanziaria del 2007/08 e la situazione odierna dell’eurozona, in particolare quella della Grecia. In questa tesi cercherò di relazionare lo spread del CDS con lo spread dell’obbligazione, che rappresenta invece una misura per determinare quanto un investitore viene compensato per assumere, in primis, il rischio di insolvenza intrinseco nel titolo. Il termine Bond-CDS Basis indica la differenza di spread tra il CDS e l’obbligazione, ovvero la differenza in basis point tra quanto si paga per coprirsi dal rischio di default di un’entità e quanto si riceve per prendersi tale rischio che si corre acquistando un bond della medesima entità. Ci sono momenti in cui questa differenza è diversa da zero e il mio studio è stato quello di individuare i fattori che scaturiscono un Bond-CDS Basis positivo o negativo, concentrandomi poi su quest’ultimo e sulle sue reali possibilità di arbitraggio nel Credit Trading.
The relationship between CDS spread and bond spread
DEL BEL BELLUZ, ENRICO
2010/2011
Abstract
A credit default swap is a financial agreement where the CDS buyer makes a series of payments to the seller in order to be hedged against the credit risk of a bond issuer. The CDS spread is the premium paid for this particular insurance, that has become topical during the 2007/08 financial crisis and nowadays with the eurozone situation, in particular the Greek one. In this thesis I try to link the CDS spread with the bond spread, a measure to reflect the additional net yield an investor can earn from a security, compared to a risk-free bond, in order to offset the default risk exposure assumed. The Bond-CDS Basis is the difference of spread, usually measured in basis points, between a CDS and a bond; that means the difference between the premium paid to hedge the credit risk of a entity and the income that the investor receives buying a bond of the same entity. There are periods where that difference is not equal to zero and my study was meant to identify the drivers that make this basis positive or negative, focusing afterwards on the negative basis and its interesting arbitrage opportunities in Credit Trading.File | Dimensione | Formato | |
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2012_04_Del Bel Belluz.pdf
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https://hdl.handle.net/10589/50642