We provide evidence that credit investors do not fully impound the implications of firms' cost structure when pricing credit default swaps. Information about firms' cost structure is not disclosed and needs to be estimated. Furthermore, the performance implications of firms' cost structure...

We investigate how the availability of traded credit default swaps (CDSs) affects the referenced firms' voluntary disclosure choices. CDSs enable lenders to hedge their credit risk exposure, weakening their incentives to monitor borrowers. We predict that reduced lender monitoring in turn leads...

We investigate how market participants price and manage counterparty credit risk in the post-crisis period using confidential trade repository data on single-name credit default swap (CDS) transactions. We find that counterparty risk has a modest impact on the pricing of CDS contracts, but a...

The q-Gaussian generalization of the Merton framework allows pricing of the additional risk premium related to fluctuations of the variance of the market value of a company's assets, which can explain the observed level of short-term CDS spreads of investment grade issuers. The derived simple...

Quanto CDS spreads are differences in CDS premiums of the same reference entity but in different currency denominations. Such spreads can arise in arbitrage-free models and depend on the risk of a jump in the exchange rate upon default of the underlying and the covariance between the exchange...

Using granular data on both debt and credit default swaps (CDS) exposures by French investors on non-financial corporations (NFC) and euro area banks on French NFCs, we study how CDS reallocate investors' exposure to credit risk. To guide our investigation, we propose a methodology to...

The substantial economic transformation required to mitigate and adapt to climate change will lower the value of certain businesses as well as some firms' assets in the not-too-distant future. Firms will need to transition to a less carbon-intensive business model, but may do so at different...

Firm cyclicality decreases by around 40% after the inception of credit default swap (CDS) trading. The effect is due to CDS firms’ lower asset growth-GDP growth sensitivity in good times and stronger for firms facing a more severe exacting creditor problem. The cyclicality-reducing effect of...

This chapter explains how the main types of credit derivatives work and how they are valued. Central to the valuation of credit derivatives is an estimation of the probability that reference entities will default. The chapter discusses both the risk-neutral probabilities of default implied from...