Template-type: ReDIF-Paper 1.0
Author-Name: Álvaro Chamizo
Author-Workplace-Name: BBVA.
Author-Name: Alfonso Novales
Author-Workplace-Name: Instituto Complutense de Análisis Económico (ICAE), and Department of Economic Analysis, Facultad de Ciencias Económicas y Empresariales, Universidad 
	Complutense, 28223 Madrid, Spain.
Title: Looking through systemic credit risk: determinants, stress testing and market value
Abstract: We provide a methodology to estimate a Global Credit Risk Factor (GCRF) from CDS spreads using the information provided by the default-related component of observed 
	spreads. These are previ- ously estimated using Pan and Singleton (2008) methodology. The estimated factor contains higher explanatory power on CDS spread 
	fluctuations across sectors than standard credit indices like iTraxx or CDX. We find a positive association between GCRF and implied volatility variables, and a 
	negative association with MSCI stock market sector indices as well as with interest rates and with the slope and the curvature of the term structure. Such 
	correlations provide useful insights for risk management as well as for the hedging of credit portfolios. Indeed, we present a synthetic factor regression model for 
	GCRF that we apply in a stress testing methodology for credit portfolios as well as to evaluate future credit risk scenarios. Finally, we show evidence suggesting 
	that the exposure to systemic credit risk was priced in the market during the 2006-2015 period.
Classification-JEL: E44, F34, G01, G11, G23, G32.
Keywords: Credit Risk; Systemic Risk; Idiosyncratic Risk; Stress Tests; Factor Models; Market Pricing.
Length: 56 pages 
Creation-Date: 2019-09
Number: 2019-27
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1927.txt
File-URL: https://eprints.ucm.es/id/eprint/57137/1/1927.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1927