This paper decomposes the explained part of the CDS spread changes of 31 listed euro area banks according to various risk drivers. The choice of the credit risk drivers is inspired by the Merton (1974) model. Individual CDS liquidity and other market and business variables are identified to...

In this paper we test whether the co-movement of sovereign CDS premia increased significantly after the Greek debt crisis started in October 2009. We perform a bivariate test for contagion that is based on an approach proposed by Forbes and Rigobon (2002). Our sample consists of daily data...

Despite the single currency, yields on government bonds in the Euro Area deviate from German bond yields. These bond spreads are usually attributed to differing default and liquidity risks. Recent research points out that time-varying global factors, approximated by risk measures or short term...

We analyze the term structure of illiquidity premiums as the difference between the yield curves of two major bond segments that are both government guaranteed but differ in their liquidity. We show that its characteristics strongly depend on the economic situation. In crisis times, illiquidity...

The financial crisis has highlighted the need for models that can identify counterparty risk exposures and shock transmission processes at the systemic level. We use the euro area financial accounts (flow of funds) data to construct a sector-level network of bilateral balance sheet exposures and...

This study calibrates the term structure of risk premia before and during the 2007/2008 financial crisis using a new calibration approach based on credit default swaps. The risk premium term structure was flat before the crisis and downward sloping during the crisis. The instantaneous risk...

Staatliche Zahlungsausfälle haben nicht selten politische Ursachen. Während ökonomische Rahmenbedingungen wie etwa Wirtschaftswachstum, Finanzstabilität oder globale Investorenstimmungen die Zahlungsfähigkeit eines Staates beeinflussen, wird die tatsächliche Rückzahlung von Staatsschulden...

This paper studies the relative pricing of euro area sovereign CDS and the underlying government bonds. Our sample comprises weekly CDS and bond spreads of ten euro area countries for the period from January 2006 to June 2010. We first compare the determinants of CDS spreads and bond spreads and...

"Arbitrage CDOs" have recorded an explosive growth during the years before the outbreak of the financial crisis. In the present paper we discuss potential sources of such arbitrage opportunities, in particular arbitrage gains due to mispricing. For this purpose we examine the risk profiles of...