Decomposition of Sovereign CDS Spread using the Concept of Factorization

Rumiana Górska

DOI: http://dx.doi.org/10.12775/DEM.2018.006

Abstract


Sovereign CDS (Credit Default Swap) is a derivative that provides insurance of repayment of the government’s loans and may be considered as a market indicator of the insolvency risk of a country. The aim of the study is to identify factors affecting the sovereign CDS spreads of selected European countries for the period from 2008 to 2016. Factor analysis shows that there are two common factors that have explained about 93% of the variation of the CDS spreads. Next, the decomposition of the spreads presents the influence of these factors on CDS spreads of surveyed countries.

Keywords


CDS spread; factor analysis; global risk; insolvency risk

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References


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ISSN (print) 1234-3862
ISSN (online) 2450-7067

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