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A multilevel factor approach for the analysis of CDS commonality and risk contribution

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A multilevel factor approach for the analysis of CDS commonality and risk contribution. / Rodríguez-Caballero, Carlos Vladimir; Caporin, Massimiliano.

In: Journal of International Financial Markets, Institutions and Money, Vol. 63, 101144, 11.2019.

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

Harvard

Rodríguez-Caballero, CV & Caporin, M 2019, 'A multilevel factor approach for the analysis of CDS commonality and risk contribution', Journal of International Financial Markets, Institutions and Money, vol. 63, 101144. https://doi.org/10.1016/j.intfin.2019.101144

APA

Rodríguez-Caballero, C. V., & Caporin, M. (2019). A multilevel factor approach for the analysis of CDS commonality and risk contribution. Journal of International Financial Markets, Institutions and Money, 63, [101144]. https://doi.org/10.1016/j.intfin.2019.101144

CBE

Rodríguez-Caballero CV, Caporin M. 2019. A multilevel factor approach for the analysis of CDS commonality and risk contribution. Journal of International Financial Markets, Institutions and Money. 63:Article 101144. https://doi.org/10.1016/j.intfin.2019.101144

MLA

Vancouver

Rodríguez-Caballero CV, Caporin M. A multilevel factor approach for the analysis of CDS commonality and risk contribution. Journal of International Financial Markets, Institutions and Money. 2019 Nov;63. 101144. https://doi.org/10.1016/j.intfin.2019.101144

Author

Rodríguez-Caballero, Carlos Vladimir ; Caporin, Massimiliano. / A multilevel factor approach for the analysis of CDS commonality and risk contribution. In: Journal of International Financial Markets, Institutions and Money. 2019 ; Vol. 63.

Bibtex

@article{85eaf38cae0e449083a12a90d4952735,
title = "A multilevel factor approach for the analysis of CDS commonality and risk contribution",
abstract = "We introduce a novel multilevel factor model that allows for the presence of global and pervasive factors, local factors and semi-pervasive factors, and that captures common features across subsets of the variables of interest. We develop a model estimation procedure and provide a simulation experiment addressing the consistency of our proposal. We complete the analyses by showing how our multilevel model might explain on the commonality across CDS premiums at the global level. In this respect, we cluster countries by either the Debt/GDP ratio or by sovereign ratings. We show that multilevel models are easier to interpret compared with factor models based on principal component analysis. Finally, we experiment how the multilevel model might allow the recovery of the risk contribution due to the latent factors within a basket of country CDS.",
keywords = "CDS risk factors, Multilevel factor models, Risk contribution",
author = "Rodr{\'i}guez-Caballero, {Carlos Vladimir} and Massimiliano Caporin",
year = "2019",
month = nov,
doi = "10.1016/j.intfin.2019.101144",
language = "English",
volume = "63",
journal = "Journal of International Financial Markets, Institutions & Money",
issn = "1042-4431",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - A multilevel factor approach for the analysis of CDS commonality and risk contribution

AU - Rodríguez-Caballero, Carlos Vladimir

AU - Caporin, Massimiliano

PY - 2019/11

Y1 - 2019/11

N2 - We introduce a novel multilevel factor model that allows for the presence of global and pervasive factors, local factors and semi-pervasive factors, and that captures common features across subsets of the variables of interest. We develop a model estimation procedure and provide a simulation experiment addressing the consistency of our proposal. We complete the analyses by showing how our multilevel model might explain on the commonality across CDS premiums at the global level. In this respect, we cluster countries by either the Debt/GDP ratio or by sovereign ratings. We show that multilevel models are easier to interpret compared with factor models based on principal component analysis. Finally, we experiment how the multilevel model might allow the recovery of the risk contribution due to the latent factors within a basket of country CDS.

AB - We introduce a novel multilevel factor model that allows for the presence of global and pervasive factors, local factors and semi-pervasive factors, and that captures common features across subsets of the variables of interest. We develop a model estimation procedure and provide a simulation experiment addressing the consistency of our proposal. We complete the analyses by showing how our multilevel model might explain on the commonality across CDS premiums at the global level. In this respect, we cluster countries by either the Debt/GDP ratio or by sovereign ratings. We show that multilevel models are easier to interpret compared with factor models based on principal component analysis. Finally, we experiment how the multilevel model might allow the recovery of the risk contribution due to the latent factors within a basket of country CDS.

KW - CDS risk factors

KW - Multilevel factor models

KW - Risk contribution

UR - http://www.scopus.com/inward/record.url?scp=85075853457&partnerID=8YFLogxK

U2 - 10.1016/j.intfin.2019.101144

DO - 10.1016/j.intfin.2019.101144

M3 - Journal article

AN - SCOPUS:85075853457

VL - 63

JO - Journal of International Financial Markets, Institutions & Money

JF - Journal of International Financial Markets, Institutions & Money

SN - 1042-4431

M1 - 101144

ER -