The Linkage Between the Options and Credit Default Swap Markets During the Subprime Mortgage Crisis

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This study investigates the linkage between the options and credit default swap (CDS) markets around the subprime mortgage crisis period, using the unit recovery claim (URC). Through estimation of a well-hedging strike price within a firm-specific and time-varying default corridor and consideration of the CDS term structure and firm-specific recovery rate, modified URCs from the two markets are demonstrated to have a tighter linkage. The adjusted URCs show that, after the crisis, the effect of macroeconomic variable on deviations between the two markets increased and the options market's predictive power for the future movement of the CDS market was amplified. (c) 2013 Wiley Periodicals, Inc. Jrl Fut Mark
Publisher
WILEY-BLACKWELL
Issue Date
2013-06
Language
English
Article Type
Article
Keywords

EQUITY VOLATILITY; DEBT; SPREADS; RISK

Citation

JOURNAL OF FUTURES MARKETS, v.33, no.6, pp.518 - 554

ISSN
0270-7314
DOI
10.1002/fut.21595
URI
http://hdl.handle.net/10203/173770
Appears in Collection
MT-Journal Papers(저널논문)
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