Overpricing in Emerging Market Credit-Default-Swap Contracts: Some Evidence from Recent Distress Cases

June 1, 2005

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Format: Chicago

Jochen R. Andritzky, and Manmohan Singh. Overpricing in Emerging Market Credit-Default-Swap Contracts: Some Evidence from Recent Distress Cases, (USA: International Monetary Fund, 2005) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Since recent debt restructurings that constitute credit events have been more frequent than outright defaults, sovereign bond prices may not collapse during distress. In this case, the likely high recovery values after restructuring suggest that the cost of credit-default-swap (CDS) contracts to the buyer (as measured by CDS spreads) may be higher than warranted. We estimate the extent of such overpricing by using the cheapest-to-deliver (CTD) bond as a proxy for the recovery-value assumption.

Subject: Bonds, Credit, Credit default swap, Currencies, Emerging and frontier financial markets

Keywords: Bond, CDS, CDS contract, Price, Value, WP

Publication Details

Pages:

13
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/125
Stock No:

WPIEA2005125
ISBN:

9781451861440
ISSN:

1018-5941

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