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A Simple Method For Measuring Systemic Risk Using Credit Default Swap Market Data

Author

Listed:
  • SANGWON SUH

    (Chung-Ang University, Korea)

  • INWON JANG

    (Office of the Comptroller of the Currency, USA)

  • MISUN AHN

    (Korea Asset Pricing, Korea)

Abstract

This paper proposes a simple method that employs credit default swap (CDS) data for analyzing systemic risk. The proposed method overcomes inconsistency problems in existing methods and can produce various indicators of systemic risk in a consistent manner. In addition, this method can measure systemic risk contributions. In particular, the method measures systemic risk contributions in both directions, that is, the overall effect of systemic risk on individual credit risks and vice versa. Using CDS data, we employ the proposed method to measure systemic risk for a group of large financial institutions in the U.S. In addition, we provide empirical results for systemic risk contributions as well as various measures of the overall level of systemic risk and verify the applicability of the proposed method.

Suggested Citation

  • Sangwon Suh & Inwon Jang & Misun Ahn, 2013. "A Simple Method For Measuring Systemic Risk Using Credit Default Swap Market Data," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(4), pages 75-100, December.
    • Handle: RePEc:jed:journl:v:38:y:2013:i:4:p:75-100
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    References listed on IDEAS

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    Cited by:

    1. 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

    Systemic Risk; Financial Stability; Systemic Risk Contribution; Credit Default Swap;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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