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The relationship between credit default swaps and loan renegotiation

International economics

Senior Researcher : Alfredo Martín-Oliver

Research Centre or Institution : Universitat de les Illes Balears

Abstract

The overall objective of this project is to improve our understanding of interaction between the private credit market and the credit default swap market, from the perspective of loan renegotiation.

So far, we have reached around 50% of the goals included in the research proposal. The proposal posited the publication of 4 academic papers. To date, we have published a paper in an academic journal with a high impact factor (Economics Letters. Impact Factor: 1.745 Q2 Economics) and a book chapter. We have a first draft of a Working Paper and we are working on the fourth article. At the meantime, we have presented our results in several international conferences.

In the following paragraphs, we detail the list of targets that we have reached:

How does bank competition affect credit risk? Evidence from loan level data. Accepted paper at Economics Letters, November 2020. The paper analyzes the determinants of credit risk of loans, which is a key element in the analysis of CDS and risk hedging.

The CDS market reaction to loan renegotiation announcements. This paper is currently under review at an academic journal. We analyze the credit market's reaction to loan renegotiation announcements through changes in credit default swap (CDS) spreads. We have presented this at the following international conferences: 60th SFA Anniversary Meeting Southern Finance Association, 2020 International Risk Management Conference, World Finance Conference and Southern Denmark University Finance Workshop.

Global Financial Crisis: Mere dry run for Covid-19? This article has been accepted for publication as a book chapter in “Financial Transformations beyond the COVID-19 Health Crisis”, (Eds. Sabri Boubaker, Duc Khuong Nguyen. World Scientific Publishing). This paper compares the stock and credit default swap market reactions to the COVID-19 announcement with the reaction to the Lehman bankruptcy, investigating the effects of both negative news and policy measures announcements by industry.

During the next months until the end of the project, we plan to focus on the second part of the targets presented in the research proposal. More concretely, we will analyze the impact of CDS negotiation on the dynamics of loan renegotiation.

 

Scientific Production
 
Magazine Articles 2
Communications at national conferences -
Communications at international conferences 4

 

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