TY  - UNPD
A1  - Aït-Sahalia, Yacine
A1  - Laeven, Roger J. A.
A1  - Pelizzon, Loriana
T1  - Mutual excitation in Eurozone Sovereign CDS : [version 14 may 2014]
T2  - SAFE working paper series ; No. 51
N2  - We study self- and cross-excitation of shocks in the Eurozone sovereign CDS market. We adopt a multivariate setting with credit default intensities driven by mutually exciting jump processes, to capture the salient features observed in the data, in particular, the clustering of high default probabilities both in time (over days) and in space (across countries). The feedback between jump events and the intensity of these jumps is the key element of the model. We derive closed-form formulae for CDS prices, and estimate the model by matching theoretical prices to their empirical counterparts. We find evidence of self-excitation and asymmetric cross-excitation. Using impulse-response analysis, we assess the impact of shocks and a potential policy intervention not just on a single country under scrutiny but also, through the effect on cross-excitation risk which generates systemic sovereign risk, on other interconnected countries.
T3  - SAFE working paper - 51 
KW  - CDS
KW  - Sovereign risk
KW  - Systemic risk
KW  - Jumps
KW  - Feedback
KW  - Hawkes processes
KW  - Mutually exciting processes
KW  - Impulse-response
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/34179
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-341791
UR  - http://ssrn.com/abstract=2438625
IS  - version 14 may 2014
PB  - SAFE
CY  - Frankfurt am Main
ER  -