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The pricing of portfolio credit risk
Tarashev, Nikola A. (Author), Zhu, Haibin (Author)

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Abstract
Equity and credit-default-swap (CDS) markets are in disagreement as to the extent to which asset returns co-move across firms. This suggests market segmentation and casts ambiguity about the asset-return correlations underpinning observed prices of portfolio credit risk. The ambiguity could be eliminated by -- currently unavailable -- data that reveal the market valuation of low-probability/large-impact events. At present, judicious assumptions about this valuation can be used to reconcile observed prices with asset-return correlations implied by either equity or CDS markets. These conclusions are based on an analysis of tranche spreads of a popular CDS index, which incorporate a rather small premium for correlation risk.

Language:English
Keywords:trg kapitala, investicije, portfolio, kreditiranje, tveganje, donos, donosnost kapitala, indeksi, capital market, investments, portfolio, crediting, risk, yield, return on equity, indexes
Work type:Not categorized (r6)
Organization:EF - Faculty of Economics
Year:2006
Publisher:Bank for International Settlements
Number of pages:36 str.
Place:Basel (Switzerland)
UDC:336.76
COBISS.SI-ID:17679846 Link is opened in a new window
Views:589
Downloads:161
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