The effect of the subprime crisis on the credit risk in global scale

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Credit default swap (CDS) has become one of the most actively traded credit derivatives, and its importance in finance markets has increased after the subprime crisis. In this study, we analyzed the correlation structure of credit risks embedded in CDS and the influence of the subprime crisis on this topological space. We found that the correlation was stronger in the cluster constructed according to the location of the CDS reference companies than in the one constructed according to their industries. The correlation both within a given cluster and between different clusters became significantly stronger after the subprime crisis. The causality test shows that the lead lag effect between the portfolios (into which reference companies are grouped by the continent where each of them is located) is reversed in direction because the portion of non-investable and investable reference companies in each portfolio has changed since then. The effect of a single impulse has increased and the response time relaxation has become prolonged after the crisis as well. Crown Copyright (C) 2013 Published by Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2013-05
Language
English
Article Type
Article
Citation

PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS, v.392, no.9, pp.2060 - 2071

ISSN
0378-4371
DOI
10.1016/j.physa.2012.12.027
URI
http://hdl.handle.net/10203/174735
Appears in Collection
PH-Journal Papers(저널논문)
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