Overpricing in Emerging Market Credit-Default-Swap Contracts: Some Evidence from Recent Distress Cases

14 Pages Posted: 3 Mar 2006

See all articles by Manmohan Singh

Manmohan Singh

International Monetary Fund (IMF)

Jochen R. Andritzky

Universität St. Gallen

Date Written: July 2005

Abstract

Since recent debt restructurings that constitute credit events have been more frequent than outright defaults, sovereign bond prices may not collapse during distress. In this case, the likely high recovery values after restructuring suggest that the cost of credit-default-swap (CDS) contracts to the buyer (as measured by CDS spreads) may be higher than warranted. We estimate the extent of such overpricing by using the cheapest-to-deliver (CTD) bond as a proxy for the recovery-value assumption.

Keywords: Bonds, Credit, Debt restructuring, Emerging markets

Suggested Citation

Singh, Manmohan and Andritzky, Jochen R., Overpricing in Emerging Market Credit-Default-Swap Contracts: Some Evidence from Recent Distress Cases (July 2005). IMF Working Paper No. 05/125, Available at SSRN: https://ssrn.com/abstract=887994

Manmohan Singh (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Jochen R. Andritzky

Universität St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

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