An empirical analysis of the CDX index and its tranches

Frank J. Fabozzi; Yi Chen Wang; Shih Kuo Yeh; Ren Raw Chen

doi:10.1080/17446540802584889

An empirical analysis of the CDX index and its tranches

Frank J. Fabozzi
, Yi Chen Wang
, Shih Kuo Yeh
, Ren Raw Chen

Research output: Contribution to journal › Journal Article › peer-review

3 Scopus citations

Abstract

The desire of market participants to go long or short a portfolio of corporate credits led to the introduction of various types of indices of credit default swaps. In this article, we empirically investigate the relationships between the spreads of the North America CDX index and its tranches and their theoretical determinants. We find (1) support for a number of results predicted by the structural models used in credit risk modelling, such as the Merton model and (2) that CDX spreads are highly responsive to microstructure variables but not to macroeconomic variables.

Original language	English
Pages (from-to)	1425-1431
Number of pages	7
Journal	Applied Economics Letters
Volume	16
Issue number	14
DOIs	https://doi.org/10.1080/17446540802584889
State	Published - 09 2009
Externally published	Yes

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10.1080/17446540802584889

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abstract = "The desire of market participants to go long or short a portfolio of corporate credits led to the introduction of various types of indices of credit default swaps. In this article, we empirically investigate the relationships between the spreads of the North America CDX index and its tranches and their theoretical determinants. We find (1) support for a number of results predicted by the structural models used in credit risk modelling, such as the Merton model and (2) that CDX spreads are highly responsive to microstructure variables but not to macroeconomic variables.",

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AB - The desire of market participants to go long or short a portfolio of corporate credits led to the introduction of various types of indices of credit default swaps. In this article, we empirically investigate the relationships between the spreads of the North America CDX index and its tranches and their theoretical determinants. We find (1) support for a number of results predicted by the structural models used in credit risk modelling, such as the Merton model and (2) that CDX spreads are highly responsive to microstructure variables but not to macroeconomic variables.

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An empirical analysis of the CDX index and its tranches

Abstract

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