Determinanter for kreditrisiko: En empirisk analyse af det europæiske credit default swap marked

Abstrakt

This thesis “Determinants of Credit Risk – an Empirical Analysis of the European Credit Default Swap Market” sets to investigate the theoretical determinants of credit risk as proposed by the structural models. Specifically looking at the determinants proposed by Robert C. Merton in 1974 – those of firm leverage, volatility and the risk free interest rate. Further, other non-theoretical determinants of credit risk, those being equity return, the spread between AAA- and BBB-rated bonds, the S&P Europe 350 index and the spread between the bid and ask quotes for the credit default swap premia, are discussed and integrated in a simple regression analysis that attempts to explain the variation in the credit default swap premia. The first two variables are used as proxies for the financial health of the company, where the S&P Europe 350 index is used as a proxy for the overall state of the economy and the credit default swap bid-ask spread is used as a proxy for liquidity in credit default swaps. As a proxy for the theoretical determinant volatility both the historical and the implied volatility are applied in the regression. Further. The analysis is performed based on monthly data from 51 European companies for the time period August 2004 to January 2010. Simple OLS regressions are employed to find the main determinants of credit default swap spread. The empirical results propose that liquidity on credit default swap and the implied volatility have a significant influence on the credit default swap spread. Additionally it seems as if the spread between two rating classes of bonds and historical volatility have some explanatory power as well. However, results where mixed when running the regression for the whole time period and when dividing into two sub periods, which casts doubt about the robustness of these results in question. Surprisingly, leverage is only tested significant when the regression is only based on the theoretical determinants of credit risk, though this is interpreted as a result of the way the leverage ratio is calculated. In addition the proxy for the risk free interest rate is only tested to have a significant impact on the variation on credit default swap spread when the regression is run by the two sub periods. These results encourage further investigation of the determinants of credit default swap spread before any final conclusions can be made.