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Estimating credit default swap spreads using accounting data, market quotes and credit ratings: the European Banks Case
Author/s: Enrico Laghi, Michele Di Marcantonio, Eugenio D'Amico 
Year:  2014 Issue: 2-3-4 Language: English 
Pages:  23 Pg. 59-81 FullText PDF:  309 KB
DOI:  10.3280/FR2014-002003
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The aim of this paper is to define a model for estimating the theoretical Credit Default Swap spread of European banks considering firms’ accounting data, market quotes, official ratings and macroeconomic variables. We detect a significant log-linear relation between Credit Default Swaps spreads and four explanatory variables determined on the basis of the stock price, the financial structure, the equity composition, the incidence of the reserve for loan losses on total loans, the official ratings and macroeconomic indicators of the country of domicile of each company. The empirical results show that for the period from 2008 to 2013 the model has a high statistical significance and a remarkable explanatory power. Our main contribution to the existing literature is the exploration of new determinants of banks’ credit risk and the provision of new evidence on the determinants of banks’ default risk in the crisis and post-crisis European context. Furthermore, we define a practical model for estimating Credit Default Swap spreads of banks suitable for professional use.
Keywords: Credit default swaps, credit risk, default risk determinants; structural models

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Enrico Laghi, Michele Di Marcantonio, Eugenio D'Amico, in "FINANCIAL REPORTING" 2-3-4/2014, pp. 59-81, DOI:10.3280/FR2014-002003


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