The Determinants of Credit Default Swap Rates: An Explanatory Study

Posted: 21 May 2005 Last revised: 18 Jul 2008

See all articles by Fathi Abid

Fathi Abid

University of Sfax, Faculty of Economic and Management Sciences, Probability & Statistics Laboratory

Nader Naifar

University of Sfax, Tunisia

Abstract

The aim of this paper is to explain empirically the determinants of credit default swap rates using a linear regression. We document that the majority of variables, detected from the credit risk pricing theories, explain more than 60% of the total level of credit default swap. These theoretical variables are credit rating, maturity, riskless interest rate, slope of the yield curve and volatility of equities. The estimated coefficients for the majority of these variables are consistent with theory and they are significant both statistically and economically. We conclude that credit rating is the most determinant of credit default swap rates.

Keywords: credit derivatives, credit risk, rating, market variables

JEL Classification: C13, C14, C19

Suggested Citation

Abid, Fathi and Naifar, Nader, The Determinants of Credit Default Swap Rates: An Explanatory Study. International Journal of Theoretical and Applied Finance, Vol. 9, No. 1, 2006, Available at SSRN: https://ssrn.com/abstract=726706

Fathi Abid (Contact Author)

University of Sfax, Faculty of Economic and Management Sciences, Probability & Statistics Laboratory ( email )

Road of Airport, Km 4
Sfax, sfax 3018
Tunisia
+216 7427 9154 (Phone)

Nader Naifar

University of Sfax, Tunisia ( email )

Road of Airport, Km 4
Sfax, sfax 3018
Tunisia

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