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Description
(Text)
This work analyses the impact that CDS standardization should have on the market. It focused on what seems to be the most important convention, among all CDS standards: the fixed coupon convention. After explaining briefly the standardization itself and this particular convention, this works analyses its impact on CDS volumes yet to be issued and on liquidity through the transaction bid ask spread. Concerning volume, it did not find an overall tendency; it depends on the market conditions. Results are that, adopting conventional CDS coupon rates above credit spread shall encourage speculation. It shall also increase hedging transaction volumes in illiquid market situations, while discouraging hedging in liquid market situations. As for the bid as spread, using an information asymmetry based model, results are that adopting coupon rate above credit spread shall increase liquidity spread.
(Author portrait)
Pedro Caruso was born and spent early childhood in Brazil. At 13, he moved to France, where he completed his studies in Market Finance, at the University Paris Dauphine. Aged 24, he achieved his master's degree: Research in Finance with honors. Nowadays, he works in the financial industry, in the Banking sector.
