The joint credit risk of UK global-systemically important banks

Cerrato, M. , Crosby, J., Kim, M. and Zhao, Y. (2017) The joint credit risk of UK global-systemically important banks. Journal of Futures Markets, 37(10), pp. 964-988. (doi: 10.1002/fut.21855)

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Abstract

We study the joint credit risk in the UK banking sector using the weekly CDS spreads of global systemically important banks over 2007-2015. We show that the time-varying and asymmetric dependence structure of the CDS spread changes is closely related to the joint default probability that two or more banks simultaneously default. We are able to flexibly measure the joint credit risk at the high-frequency level by applying the combination of the reduced-form model and the GAS-based dynamic asymmetric copula model to the CDS spreads. We also verify that much of the dependence structure of the CDS spread changes are driven by the market factors. Overall, our study demonstrates that the market factors are key inputs for the effective management of the systemic credit risk in the banking sector.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Cerrato, Professor Mario and Kim, Dr Minjoo
Authors: Cerrato, M., Crosby, J., Kim, M., and Zhao, Y.
Subjects:H Social Sciences > HG Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Futures Markets
Publisher:Wiley
ISSN:0270-7314
ISSN (Online):1096-9934
Published Online:14 June 2017
Copyright Holders:Copyright © 2017 Wiley Periodicals, Inc.
First Published:First published in Journal of Futures Markets 37(10): 964-988
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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