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Interconnectedness and systemic risk in the US CDS market

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  • Kanno, Masayasu

Abstract

This study assesses systemic risk in the US credit default swap (CDS) market. First, this study estimates the bilateral exposures matrix using aggregate fair value data and theoretically analyze interconnectedness in the US CDS network using various network measures. Second, this study theoretically analyzes the contagious defaults. The default analysis shows the theoretical occurrence of many stand-alone defaults and one contagious default via the CDS network during the global financial crisis. A stress test based on a hypothetical severe stress scenario predicts almost no future contagious defaults. Thus, risk contagion via the CDS network is unlikely.

Suggested Citation

  • Kanno, Masayasu, 2020. "Interconnectedness and systemic risk in the US CDS market," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940817304047
    DOI: 10.1016/j.najef.2018.08.020
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    2. Ballester, Laura & López, Jesúa & Pavía, Jose M., 2023. "European systemic credit risk transmission using Bayesian networks," Research in International Business and Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Credit default swap; Systemic risk; Contagious default; Interconnectedness; Centrality measure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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