Andreas Milidonis
University of Cyprus
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An Empirical Investigation of CDS Spreads Using a Regime Switching Default Risk Model.
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ActuarialSc
Milidonis, Andreas.
North American Actuarial Journal 20 (3), 252-275.
Publication year: 2016
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.