The Asset Swap–Credit Default Swap Basis

Choudhry, Moorad

doi:10.1016/b978-0-08-098295-3.00007-3

Cited by 18 publications

(21 citation statements)

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“…The Z-spread, which is widely used in industry to define the basis (e.g., Choudhry, 2006), represents a parallel shift of the credit curve such that the present value of future cash flows equals the current price. For a 5-year plain vanilla bond with an annual coupon, we obtain the Z-spread by solving the following equation:…”

Section: Methodsmentioning

confidence: 99%

CDS-bond basis and bond return predictability

Kim

Zhang

2016

Journal of Empirical Finance

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We examine the predictive power of the CDS-bond basis for future corporate bond returns. We find that residual basis, the part of the CDS-bond basis that cannot be explained by a wide range of market frictions such as counterparty risk, funding risk, and liquidity risk, strongly negatively predicts excess returns. Controlling for systematic risk factors, including credit risk and liquidity risk, we find that a bond portfolio formed on the residual basis generates a significant abnormal bond return of 1.79% at the 20-day horizon. The abnormal returns due to the residual basis reflect mispricing rather than missing systematic risk factors. These results are robust to different horizons and sample periods and to the various characteristics of bonds. Overall, our results imply a beneficial role of CDS in the bond market as the existence of mispricing between CDS and bonds results in a subsequent price convergence in bonds.JEL Classification: G10, G12

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Section: Methodsmentioning

confidence: 99%

CDS-bond basis and bond return predictability

Kim

Zhang

2016

Journal of Empirical Finance

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“…Böylece kredi riski tek bir tarafta toplanmayarak hem risk indirgenmiş hem de riskin taraflarca farklı algısından ötürü getiri elde edilmiş olur. (Choudhry, 2006)…”

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Kredi̇ Temerrüt Takaslari Ve Bi̇st-100 Arasindaki̇ İli̇şki̇ni̇n İncelenmesi̇

Hanci¹

2014

Maliye Finans Yazıları

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Bu çalışmanın amacı ülkelere ait Kredi Temerrüt Takası (KTT) baz puanları ile borsa arasındaki ilişki incelenerek Türkiye'de gerçekleşen üretim düzeyi üzerinden krizler açısından bir değerlendirme yapabilmektir. Çalışmada Türkiye'ye ait KTT baz puan ile Ocak 2008-Aralık 2012 arası günlük BİST-100 getirileri arasındaki ilişki incelenmiştir. Bu doğrultuda, çalışmanın metodolojik kısmında iki değişken arasında volatilite tespiti yapılarak, bu volatilite GARCH (Generalized Autoregressive Conditional Heteroskedasticity) ile modellenmiş ve ortalamaya geri dönüşlerin çok dirençli olduğu sonucuna varılmıştır.

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“…This method is described, e.g., in [8]. The negative basis NB (Z) is computed by the following algorithm.…”

Section: The Z-spread Methodologymentioning

confidence: 99%

“…This excess return over the risk-free rate is informally called negative basis 1 ; more formal definitions are given in the main body of this article. [8] has even devoted an entire book to the topic. If, conversely, the cost of CDS protection exceeds the bond earnings, one speaks of a positive basis.…”

Section: Introductionmentioning

confidence: 99%

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Negative Basis Measurement: Finding the Holy Scale

Bernhart¹,

Mai²

2016

Innovations in Derivatives Markets

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Investing into a bond and at the same time buying CDS protection on the same bond is known as buying a basis package. Loosely speaking, if the bond pays more than the CDS protection costs, the position has an allegedly risk-free positive payoff known as "negative basis". However, several different mathematical definitions of the negative basis are present in the literature. The present article introduces an innovative measurement, which is demonstrated to fit better into arbitrage pricing theory than existing approaches. This topic is not only interesting for negative basis investors. It also affects derivative pricing in general, since the negative basis might act as a liquidity spread that contributes as a net funding cost to the value of a transaction; see Morini and Parampolini (Risk, 58-63, 2011, [23]).

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The Asset Swap–Credit Default Swap Basis

Cited by 18 publications

References 0 publications

CDS-bond basis and bond return predictability

CDS-bond basis and bond return predictability

Kredi̇ Temerrüt Takaslari Ve Bi̇st-100 Arasindaki̇ İli̇şki̇ni̇n İncelenmesi̇

Negative Basis Measurement: Finding the Holy Scale

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