Credit derivatives : market dimensions, correlation with equity and implied option volatility, regression modeling and statistical price risk
Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management, 2004.
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| Format: | Thesis |
| Language: | eng |
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Massachusetts Institute of Technology
2005
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| Online Access: | http://hdl.handle.net/1721.1/17896 |
| _version_ | 1811090764675940352 |
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| author | Kureshy, Imran, A., 1965- |
| author2 | S.P. Kothari. |
| author_facet | S.P. Kothari. Kureshy, Imran, A., 1965- |
| author_sort | Kureshy, Imran, A., 1965- |
| collection | MIT |
| description | Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management, 2004. |
| first_indexed | 2024-09-23T14:51:36Z |
| format | Thesis |
| id | mit-1721.1/17896 |
| institution | Massachusetts Institute of Technology |
| language | eng |
| last_indexed | 2024-09-23T14:51:36Z |
| publishDate | 2005 |
| publisher | Massachusetts Institute of Technology |
| record_format | dspace |
| spelling | mit-1721.1/178962019-04-10T15:26:24Z Credit derivatives : market dimensions, correlation with equity and implied option volatility, regression modeling and statistical price risk Kureshy, Imran, A., 1965- S.P. Kothari. Sloan School of Management. Sloan School of Management. Sloan School of Management. Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management, 2004. Includes bibliographical references (leaves 50-51). This research thesis explores the market dimensions of credit derivatives including the prevalent product structures, leading participants, market applications and the issues confronting this relatively new product. We find the market continues to experience significant growth particularly in single name default swaps. This growth is fueled in part by increased participation of hedge funds and applications beyond risk management as an acceptable trading instrument. As this market continues to grow it must address the need for specialized technology infrastructure to support continued growth and consistency in documentation to ensure confidence. We then set out to explore the relationship between CDS spreads and the equity markets. We find a strong correlation with implied option volatility. While this relationship does not suggest causation, the magnitude of these relationships should assist market participants in developing effective trading and portfolio management strategies. We also explore the volatility of default spreads and find that there is wide disparity in volatility among common credit ratings. This leads to a suggestion that market participants may be able to reduce spread volatility and earn enhanced risk-adjusted yields by constructing credit portfolios based on spread widening risk rather than default risk. Finally, since the focus of this thesis report was market application, we take the analyses and develop a regression model that serves as a quick and easy to use reference tool for credit derivative market participants. The data sample for this research paper spans 97 issuers across 19 industries and 10 credit rating levels including non-investment grade. The sample period covers daily observations between (cont.) September 20, 2002 and December 31, 2003. by Imran A. Kureshy. M.B.A. 2005-06-02T19:05:51Z 2005-06-02T19:05:51Z 2004 2004 Thesis http://hdl.handle.net/1721.1/17896 56668448 eng M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission. http://dspace.mit.edu/handle/1721.1/7582 148 leaves 9571273 bytes 9571080 bytes application/pdf application/pdf application/pdf Massachusetts Institute of Technology |
| spellingShingle | Sloan School of Management. Kureshy, Imran, A., 1965- Credit derivatives : market dimensions, correlation with equity and implied option volatility, regression modeling and statistical price risk |
| title | Credit derivatives : market dimensions, correlation with equity and implied option volatility, regression modeling and statistical price risk |
| title_full | Credit derivatives : market dimensions, correlation with equity and implied option volatility, regression modeling and statistical price risk |
| title_fullStr | Credit derivatives : market dimensions, correlation with equity and implied option volatility, regression modeling and statistical price risk |
| title_full_unstemmed | Credit derivatives : market dimensions, correlation with equity and implied option volatility, regression modeling and statistical price risk |
| title_short | Credit derivatives : market dimensions, correlation with equity and implied option volatility, regression modeling and statistical price risk |
| title_sort | credit derivatives market dimensions correlation with equity and implied option volatility regression modeling and statistical price risk |
| topic | Sloan School of Management. |
| url | http://hdl.handle.net/1721.1/17896 |
| work_keys_str_mv | AT kureshyimrana1965 creditderivativesmarketdimensionscorrelationwithequityandimpliedoptionvolatilityregressionmodelingandstatisticalpricerisk |