We develop a state-space model to decompose bid and ask quotes of CDS into two components, fair default premium and … liquidity premium. This approach gives a better estimate of the default premium than mid quotes, and it allows to disentangle … and compare the liquidity premium earned by the protection buyer and the protection seller. In contrast to other studies …

We develop a state-space model to decompose bid and ask quotes of CDS into two components, fair default premium and … liquidity premium. This approach gives a better estimate of the default premium than mid quotes, and it allows to disentangle … and compare the liquidity premium earned by the protection buyer and the protection seller. In contrast to other studies …

Based on individual CDS transactions cleared by the Depository Trust & Clearing Corporation, we show that illiquidity … finding stands in stark contrast to corporate bond markets. Third, traders charge higher premiums as a price for liquidity … dealers for demanding liquidity. Last, inventory risk seems to matter little in explaining liquidity premiums. …

We show that liquidity risk is priced in the cross section of returns on credit default swaps (CDSs). We measure CDS … constituents' CDS spreads, and we construct a tradable liquidity factor from returns on index arbitrage strategies. CDS contracts … CDS spreads; on average, liquidity risk accounts for 24% of CDS spreads. Consistent with recent models of intermediary …

Following the 2008 financial crisis, regulation mandates the clearing of the CDS market through Central Clearing …-mediated contagion and its amplification. A novel spatial measure captures the covariance between members' CDS holdings and the CDS being … unwound. Key results show: Liquidations by constrained members lower the CCP's profits and make cds-spreads less informative …