Counterparty Risk Management with Market-Based Indicators: Lessons from the Crisis

摘要: During a financial crisis, which counterparties we would prefer not to be exposed to? This paper addresses this issue in the context of 2007-2009 crisis by proposing three market-based measures (two are based on credit default swap spreads and other one, stock prices) for identifying too risky among big international entities. Our results show that market prices provide significant early warning signals fragility distressed institutions accuracy indicators is much better than traditional rating’ similar ratings’ provided rating agency. Volatility issues addressed means simple smoothing procedure.