Credit Risk Premia In Sovereign Credit Default Swaps

Download or read book Credit Risk Premia in Sovereign Credit Default Swaps written by Rob C. Sperna Weiland and published by . This book was released on 2018 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, I analyze credit risk premia embedded in sovereign CDS spreads. In particular, I consider a heretofore largely ignored component that reflects the compensation investors demand for default event risk. I find that this default event risk premium is most heavily priced in short maturity CDS spreads of low-rated countries. Risk premia related to unpredictable variations in default risk, on the other hand, are more important for long maturity CDS spreads of high-rated countries. I show that differences in CDS decomposition across rating classes are mainly caused by differences in sovereign-specific risk rather than differences in exposure to systemic risk.