Idiosyncratic and Systemic Risk in the European Corporate Sector : A CDO Perspective

Author/Editor:

Yinqiu Lu ; Jorge A Chan-Lau

Publication Date:

April 1, 2006

Electronic Access:

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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:

Systemic risk remains a major concern to policymakers since widespread defaults in the corporate and financial sectors could pose substantial costs to society. Forward-looking measures and/or indicators of systemic default risk are thus needed to identify potential buildups of vulnerability in advance. In this paper, we explain how to construct idiosyncratic and systemic default risk indicators using the information embedded in single-tranche standardized collateralized debt obligations (STCDOs) referencing credit derivatives indices. As an illustration, both risk indicators are constructed for the European corporate sector using midprice quotes for STCDOs referencing the iTraxx Europe index.

Series:

Working Paper No. 06/107

Subject:

English

Publication Date:

April 1, 2006

ISBN/ISSN:

9781451863673/1018-5941

Stock No:

WPIEA2006107

Format:

Paper

Pages:

18

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