<p>This paper presents empirical evidence on the determinants of interest rate swap spreads in Sweden during the period 1999-2003. The results suggest that the spread between STIBOR and the general collateral repo rate is positively related to shorter maturity swap spreads. The risk premium associated with commercial bonds is positively related to swap spreads of all maturities. A negative relationship is observed between the term structure of interest rates and swap spreads. The short-term interest rate is positively related to spreads with shorter maturities. Interest rate volatility, stock-market movements and exchange rate movements appear to have no impact on Swedish swap spreads.</p>

This paper presents empirical evidence on the determinants of interest rate swap spreads in Sweden during the period 1999-2003. The results suggest that the spread between STIBOR and the general collateral repo rate is positively related to shorter maturity swap spreads. The risk premium associated with commercial bonds is positively related to swap spreads of all maturities. A negative relationship is observed between the term structure of interest rates and swap spreads. The short-term interest rate is positively related to spreads with shorter maturities. Interest rate volatility, stock-market movements and exchange rate movements appear to have no impact on Swedish swap spreads.

The focus of this dissertation is the European Credit Default Swaps (CDSs) market. CDSs are the most popular credit derivative products. Three issues are discussed, the first, which is covered in chapter 2, is the investigation of non-diversifiable jump risk in iTraxx sector indices based on a multivariate model that explicitly admits discrete common jumps for an index and its components. Our empirical research shows that both the iTraxx Non-Financials and their components experience jumps during the sample period, which means that the jump risks in the iTraxx sector index are not diversifiable. The second issue, which is covered in chapter 3 is the component structure of credit default swap spreads and their determinants. We firstly extract a transitory component and a persistent component from two different maturities of the Markit iTraxx index and then regress these components against proxies for several commonly used explanatory variables. Our results show that these explanatory variables have significant but differing impacts on the extracted components, which indicates that a two-factor formulation may be needed to model CDS options. The last issue, which is covered in chapters 4, 5 and 6 is the investigation of the linkage between the credit default swap market and the equity market within the European area. We innovatively calibrate the CDS option with the Heston Model to get the implied volatility in the CDS market, which allows us to investigate both the characteristic of implied volatility in the CDS market and the relationship of the two markets not only on the level of daily changes but also with regard to its second moment. Our analysis shows that the stock market weakly leads the CDS market on daily changes but for implied volatility, the stock market leads the CDS market. A VECM analysis shows that only the stock market contributes to price discovery. For sub-investment grade entities, the interactivities between the implied volatility of the CDS market and the implied volatility of the stock market are stronger, especially during the recent credit crunch period. All these results have important implications for the construction of portfolios with credit-sensitive instruments.

Cholesky Decomposition is usually used to deal with the correlation problem among a financial product's underlying assets. However, Cholesky Decomposition inherently suffers from the requirement that all eigenvalues must be positive. Therefore, Cholesky Decomposition can't work very well when the number of the underlying assets is high. The report takes a diffrent approach called spectral Decomposition in attempt to solve the problem. But it turns out that although Spectral Decomposition can meet the requirement of all-positive eigenvalue, the decomposision error will be larger as the number of underlying asset getting larger. Thus, although Spectral Decomposition does offer some help, it works better when the number of underlying assets is not very large.

Abstract The valuation of equity swap under the condition of risk neutral is similar to the forward interest rate swap with the same period. Therefore, its valuation formula is consistent to interest rate swap model in the traditional methods. But it is not the same as in pricing the cross-currency equity swap. The dymanic prices of foreign stock index and exchange rate, and the correlation coefficients between exchange rates and foreign assets also affect the swap rate. In this paper, we extend Chance and Rich(1998)¡¦s valuation formula of equity swaps, and apply Amin (1991)¡BAmin and Bodurtha(1995)¡BLin(1997)¡¦s dymanic prices of assets in discrete time period. To derive the risk neutral valuation formula of equity swap, it uses the method of transfer probability measure. This study finds the expected return of foreign stock index in the no arbitrage condition, in addition equal to foreign forward interest rate with the same period , must be add a correction term to reflect the exchange rate risk and the transfer of forward martingale measure. This paper also derives the pricing formula of equity swaptions¡Bcaps¡Bfloors¡Bvariable notional principal and blended equity swap. Finally, we find the volatility of foreign forward interest rate is the most important factor of pricing the swap rate from numerical simulation. And if the correlation of the volatility of exchange rate and foreign stock index¡Bthe correlation of the volatility of exchange rate and foreign forward interest rate are negative, the swap rate will be higher.

The focus of this dissertation is the European Credit Default Swaps (CDSs) market. CDSs are the most popular credit derivative products. Three issues are discussed, the first, which is covered in chapter 2, is the investigation of non-diversifiable jump risk in iTraxx sector indices based on a multivariate model that explicitly admits discrete common jumps for an index and its components. Our empirical research shows that both the iTraxx Non-Financials and their components experience jumps during the sample period, which means that the jump risks in the iTraxx sector index are not diversifiable. The second issue, which is covered in chapter 3 is the component structure of credit default swap spreads and their determinants. We firstly extract a transitory component and a persistent component from two different maturities of the Markit iTraxx index and then regress these components against proxies for several commonly used explanatory variables. Our results show that these explanatory variables have significant but differing impacts on the extracted components, which indicates that a two-factor formulation may be needed to model CDS options. The last issue, which is covered in chapters 4, 5 and 6 is the investigation of the linkage between the credit default swap market and the equity market within the European area. We innovatively calibrate the CDS option with the Heston Model to get the implied volatility in the CDS market, which allows us to investigate both the characteristic of implied volatility in the CDS market and the relationship of the two markets not only on the level of daily changes but also with regard to its second moment. Our analysis shows that the stock market weakly leads the CDS market on daily changes but for implied volatility, the stock market leads the CDS market. A VECM analysis shows that only the stock market contributes to price discovery. For sub-investment grade entities, the interactivities between the implied volatility of the CDS market and the implied volatility of the stock market are stronger, especially during the recent credit crunch period. All these results have important implications for the construction of portfolios with credit-sensitive instruments.

Diss. Univ. Linz, 2007. / Literaturverz. S. 141 - 159.

Master-Arbeit Univ. St. Gallen, 2009.

Master-Arbeit Univ. St. Gallen, 2009.

Diss. Univ. Zürich, 2008. / CDS: Credit default swap. Literaturverz.