Idiosyncratic and Systemic Risk in the European Corporate Sector A CDO Perspective

Systemic risk remains a major concern to policymakers since widespread defaults in the corporate and financial sectors could pose substantial costs to society. Forward-looking measures and/or indicators of systemic default risk are thus needed to identify potential buildups of vulnerability in advan...

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Bibliographic Details
Main Author: Lu, Yinqiu
Other Authors: Chan-Lau, Jorge
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2006
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a Idiosyncratic and Systemic Risk in the European Corporate Sector  |b A CDO Perspective  |c Yinqiu Lu, Jorge Chan-Lau 
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300 |a 18 pages 
651 4 |a United States 
653 |a Government and the Monetary System 
653 |a Payment Systems 
653 |a Institutional Investors 
653 |a Credit 
653 |a Stocks 
653 |a Pension Funds 
653 |a Finance 
653 |a Regimes 
653 |a Monetary economics 
653 |a General Financial Markets: Government Policy and Regulation 
653 |a Financial Instruments 
653 |a Monetary Policy, Central Banking, and the Supply of Money and Credit: General 
653 |a Investments: Derivatives 
653 |a Money 
653 |a Derivative securities 
653 |a Non-bank Financial Institutions 
653 |a Standards 
653 |a Systemic risk 
653 |a Cdos 
653 |a Financial risk management 
653 |a Investments: Stocks 
653 |a Currencies 
653 |a Monetary Systems 
653 |a Investment & securities 
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520 |a Systemic risk remains a major concern to policymakers since widespread defaults in the corporate and financial sectors could pose substantial costs to society. Forward-looking measures and/or indicators of systemic default risk are thus needed to identify potential buildups of vulnerability in advance. In this paper, we explain how to construct idiosyncratic and systemic default risk indicators using the information embedded in single-tranche standardized collateralized debt obligations (STCDOs) referencing credit derivatives indices. As an illustration, both risk indicators are constructed for the European corporate sector using midprice quotes for STCDOs referencing the iTraxx Europe index