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ФКН

Research seminar by Dmitri Vinogradov (Essex Business School): «Do CDS Spreads reflect default risks? Evidence from UK bank bailouts»

Monday, October 04 at 4.30 pm International College of Economics and Finance will hold the Research seminar.
Venue: Pokrovski Bulvar, 11, Room Zh-822
Lecturer: Dmitri Vinogradov (Essex Business School)
Theme: «Do CDS Spreads reflect default risks? Evidence from UK bank bailouts» (pdf version)

 

 

Abstract: CDS spreads are generally considered to reflect the credit risks of their reference entities. However, CDS spreads of the major UK banks remained stable in response to the recent credit crisis. We suggest that this can be explained by changes in loss given default (LGD). To obtain the result we first derive the probabilities of default from stock option prices and then determine the LGD consistent with actual CDS spreads. Our results reveal a significant decrease in the LGD of bailed out banks over the observed period in contrast to banks which were not bailed out and nonfinancial
companies.


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