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An Empirical Analysis of Turkish Credit Default SWAPS

Author

Listed:
  • Hasan BAKLACI

    (İzmir University of Economics)

  • İlker ARSLAN

    (Türkiye İş Bankası)

Abstract

Despite its widespread use globally, majority of the Turkish financial institutions are still unaware of Credit Default Swaps (CDS), stemming mainly from insufficient financial infrastructure and information base for credit derivatives. This study analyzes Turkish CDS from various perspectives. The findings exhibit that 10-year spreads are found to be overpriced, primarily due to the lack of liquidity in current CDS market in Turkey. Besides, the term structure of default probability estimations for Turkey reveal that the level and the change in default risk for Turkey for the next five years is relatively low, particularly when compared to 2001 which is marked as the worst crisis year.

Suggested Citation

  • Hasan BAKLACI & İlker ARSLAN, 2006. "An Empirical Analysis of Turkish Credit Default SWAPS," Ekonomik Yaklasim, Ekonomik Yaklasim Association, vol. 17(60-61), pages 111-121.
    • Handle: RePEc:eyd:eyjrnl:v:17:y:2006:i:60:p:111-121
    DOI: 10.5455/ey.10620
    Note: [English Title] AN EMPIRICAL ANALYSIS OF TURKISH CREDIT DEFAULT SWAPS [English Abstract] Despite its widespread use globally, majority of the Turkish financial institutions are still unaware of Credit Default Swaps ( CDS ), stemming mainly from insufficient financial infrastructure and information base for credit derivatives. This study analyzes Turkish CDS from various perspectives. The findings exhibit that 10-year spreads are found to be overpriced, primarily due to the lack of liquidity in current CDS market in Turkey. Besides, the term structure of default probability estimations for Turkey reveal that the level and the change in default risk for Turkey for the next five years is relatively low, particularly when compared to 2001 which is marked as the worst crisis year. [English Keywords] credit derivatives, default swap, default probability, term structure
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