Default correlation is a concern especially after witnessing the financial crisis. To find default correlations, we would like to know asset correlations which are unobservable. In this paper we derive a model to infer asset correlations from Credit Default Swaps (CDSs). We use a structural...

Trillions of dollars of derivatives are trading in many markets regularly, but little is known about the direct interactions between different types of derivatives referencing the same firm. This study is the first to examine the impact of credit derivatives on equity derivatives. We show that...

Is the CDS market liquid? Researchers claim that CDS market is liquid and thus the spreads reflect pure default risk. We investigate this claim. Since it is hard to measure liquidity precisely, we use an event study when a CDS is included into the CDX index. This event changes the liquidity of...