Credit default swap prices as risk indicators of listed German banks

摘要

This paper explores empirically the usefulness of credit default swap (CDS) prices as market indicators. The sample of reference entities consists of large, internationally active German banks and the observation period covers 3 years. By analysing the explanatory power of three risk sources: idiosyncratic credit risk, systematic credit risk and liquidity risk, we gain important insights into modeling the dynamics of CDS spreads. The impact of systematic risk, for example, has three components; one is related to the overall state of the economy, another related to the risk of the internationally active banking sector, and the third is an unobservable systematic factor.