Mutual excitation in Eurozone sovereign CDS
研究了欧元区主权CDS市场中冲击的自激励和交叉激励，发现自激励和不对称交叉激励的证据，对评估资本注入的跨国产出有应用价值。
We study self- and cross-excitation of shocks in the sovereign CDS market, on the basis of a large database of Eurozone sovereign CDS spreads. We adopt a multivariate setting with credit default intensities driven by mutually exciting jump processes, to capture the salient features observed in the data, in particular, the clustering of high default probabilities both in time (over days) and in space (across countries). We develop and implement an estimation methodology for our model, by deriving closed-form formulae for CDS prices using the conditional character- istic function, and matching those prices to their empirical counterparts. We …nd evidence for self-excitation and asymmetric cross-excitation. Our analysis has important …nancial economic applications, such as to assess the impact of a capital injection not just on a single country under scrutiny but also, through reduction of cross-excitation risk — the essence of systemic sovereign risk— , on other interconnected countries.