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Cross sectional default probabilities in European corporate bonds
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Resumo(s)
This study attempts to identify basis-trading opportunities in the European banking sector by comparing two different measures for the market’s assessment of risk: market-observed CDS spreads and model-implied Z-spreads. Using a sample of 10 banks, over a period of 3 years following the European banking crisis, it can be concluded that there were arbitrage opportunities in the sector, as evidenced by the derived negative bases.
Descrição
A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from Nova School of Business and Economics