The Impact of Sovereign Debt Crisis on the Degree of Interdependence of CDS markets

摘要

In this paper, we analyze the correlation between the sovereign Credit Default Spreads (CDS) with Gaussian, Student's t, Gumbel and Clayton copula models. Data is divided into two sub-periods: pre-crisis period (Jan.1-Dec.8, 2009) and post-crisis period (Dec.9, 2009-Dec.31 2010). Method of Conditional Maximum Likelihood Estimation is used. We find out 1) all correlation estimates are higher during post-crisis period. 2) Gumbel copula model has better in-sample fit in both pre-crisis and post-crisis periods according to AIC and SED. 3) The right tail dependence is stronger than the left one.