Andreas Milidonis
University of Cyprus
An Empirical Investigation of CDS Spreads Using a Regime Switching Default Risk Model.
- We compare the timeliness of the Merton Default Risk Model and the Regime-switching Default Risk model.
- A Credit Warning Signal (CWS) is proposed based on the two models.
- Using data from the US (2004-2010) the CWS is compared to CDS spreads.
- CWS is shown to have a lead effect over CDS spreads.