信用衍生性商品於近十年來已快速發展，為反映信用風險管理的迫切需求，本篇論文將以實證的方式探討信用衍生性市場。尤其著重在信用違約交換市場，因其佔信用衍生性市場的交易量高達45％。本篇論文分別討論以下二個議題：第一個議題乃在探討股票報酬率的峰態係數與信用違約交換報酬率的關係。第二個議題乃著重探討拉丁美洲國家的信用違約交換對阿根廷事件的反應。

The development of credit derivatives in the past decade has brought about pronounced innovations in the markets. To reflect dramatic demand in managing credit risk, this thesis dedicates to the empirical world of credit derivatives markets. We especially focus on Credit Default Swaps (CDS) market due to its most widely trading in credit derivatives markets, capturing almost 45% of the market shares. This thesis encompasses two essays related to CDS. In the first essay, we attempt to extend empirical explanation of CDS premiums by considering the excess kurtosis of equity return distribution. As well, we show how copula functions can be applied to specify both the dependence structure and the tail relationship between CDS return and kurtosis of equity distribution. We contribute to the better specification of the dependence structure between the CDS return and the corresponding kurtosis, and provide an illustration of its implication which may be misled using conventional methods.
In the second essay, we turn to focus on CDS in emerging markets. Thereby, further policy-oriented applications for governments can be extra induced. We empirically study the correlated default at sovereign level in Latin America region due to the eruption of Argentina debt crisis in 2001. A comprehensive understanding of correlated default at sovereign level is of critical importance in several respects. From the government and IMF point of views, the comovement in sovereign credit default swaps can serve as one of the leading indicators of financial crises. From the perspectives of mutual funds and banks, correlated movement which exists in sovereign CDS spreads is regarded as one of the measures of country risk premium. The findings and the associated methodology can provide useful insights not only to policymakers but also to whoever is interested in credit derivatives markets, particularly in emerging markets. From the methodology point of view, applying a copula method to identify the contagion corresponds to the arguments from Bae et. al. (2003) and Dungey and Tambakis (2003), the further challenge is to develop a model for capturing the nonlinear property.

Chapter 1. Introduction 1
Chapter 2. Copula Methodology and Its Application on Credit Derivatives 6
2.1 Copula Functions 7
2.2 Measure of Dependence 12
2.3 Estimating and Calibrating Copula Models 17
2.3.1 Exact Maximum Likelihood Method (EML) 17
2.3.2 The Inference Functions for Margins Method (IFM) 18
2.3.3 The Canonical Maximum Likelihood Method (CML) 19
2.3.4 GARCH Filter Method 20
2.3.5 Mashal and Zeevi 2002 Method 21
2.3.6 Copula Application on Credit Derivatives 21
Chapter 3. Essay One: Dependence Structure between the Credit Default Swap Return and the Kurtosis of the Equity Return Distribution 24
3.1 Introduction 24
3.2 The Recent Empirical Issues on CDS 27
3.3 A Copula-Based Correlation Measurement 29
3.4 Data Description 31
3.5 Empirical Results 32
3.5.1 Normality Test and Descriptive Statistics 32
3.5.2 Comparable Correlation Measures 32
3.5.3 Estimating Dependence Parameters 33
3.5.4 Goodness-of-fit Test 34
3.5.5 Computing Coefficients of Tail Dependence 35
3.5.6 Density Plot 36
3.6 Concluding Remark 37
Chapter 4. Essay two: Default correlation at sovereign level: Evidence from Latin America markets 38
4.1 Introduction 38
4.2 The Emerging Market Credit Derivatives Market 43
4.2.1 The Role of Sovereign Bonds in Emerging Markets 43
4.2.2 Sovereign Credit Default Swaps in EMCD Market 44
4.3 A Copula-Based Correlated Sovereign Default 46
4.4 Data Description and Background of 2001 Argentina Debt Crisis 49
4.5 Empirical Results 50
4.5.1 Summary Statistics of Sovereign CDS Spreads 51
4.5.2 Comparable Correlation Measures 52
4.5.3 Calibrating and Estimating Parameters via IFM Approach 52
4.5.4 Calibrating and Estimating Parameters via CML Approach 54
4.5.5 Calibrating and Estimating Parameters via GARCH Filter Approach 58
4.5.6 Computing Coefficients of Tail Dependence 60
4.5.7 Density Plot 61
4.6 Concluding Remark 62
Chapter 5. Implications and Future Works 64
Reference 103
Appendix 109
Proof of Proposition 1 109
Proof of Proposition 2 109
Proof of Proposition 5 110
Derive the Log-Likelihood Function of Multivariate Gaussian Copula 110
Derive the Log-Likelihood Function of Multivariate Student’s t Copula 111
Derive the Log-Likelihood Function of Bivariate Gumbel Copula 111
Derive the Log-Likelihood Function of Bivariate Rotoated Gumbel Copula 112
Derive the Log-Likelihood Function of Bivariate Clayton Copula 113
Derive the Log-Likelihood Function of Bivariate Frank Copula 113

Abid,F. and Naifar, N., 2004. ‘The impact of stock returns volatility on credit default swap rates: A copula study’, International Journal of Theoretical and Applied Finance 8, 1135-1155.
Andersen, T.L. and Benzoni, J., L., 2002. ‘An empirical investigation of continuous-time equity return models’, Journal of Finance 57, 1239-1284.
Andreev, A. and Kanto.A, 2005. ‘Conditional value-at-risk estimation using non-inter values of degree of freedom in Student’s t-distribution’, The Journal of Risk 7, 55-62
Ang, A. and Bekaert, G., 2002. ‘International asset allocation under regime switching’, Review of Financial Studies 15, 1137-1187
Avellaneda, M., Wu, W., 2001. ‘Credit contagion: Pricing cross-country risk in brady debt markets’, International Journal of Theoretical and Applied Finance 4, 921-938.
Bae, K. H., Karolyi, G. A. and Stulz, R. M., 2003. ‘A new approach to measuring financial contagion’, The Review of Financial Studies 16, 717-763.
Baek, In-Mee, Bandopadhyaya, A. and Du, C., 2005. ‘Determinants of market-assessed sovereign risk: Economic fundamentals or market risk appetite?’, Journal of International Money and Finance 24, 533-548
Bauer, C. Herz, B. and Karb, V., 2003. ‘Another twin crisis: Currency and debt’, working paper, University of Bayreuth.
Bates, D. S., 1996. ‘Jump and stochastic volatility: Exchange rate process implicit in Deutsche Mark options’, The Review of Financial Studies, 9, 69-107.
Batten,J. and Hogan,W., 2002. ‘A perspective on credit derivatives’, International Review of Financial Analysis 11, 251-278
Beattie, J., 2000. ‘Contagion in Latin America: An analysis of credit derivatives’, working paper, Duke University.
Bee, M., 2004. ‘Modeling credit default swap spreads by means of normal mixtures and copulas’, Applied Mathematical Finance 11, 125-146.
Bekaert, G., Harvey, C. R. and Ng, A., 2005. ‘Market integration and contagion’, Journal of Business 78, 39-69
Benkert, C., 2004. ‘Explaining Credit Default Swap Premia’, The Journal of Futures Markets 24, 71-92
Berg, A., Patillo, C., 1999. ‘Are currency crises predictable? A test’, IMP Staff Papers 46, 107-138
Blanco,R, Brennan,S and Marsh, I.W., 2005. ‘An empirical analysis of the dynamic relation between investment-grade bonds and credit default swaps’, Journal of Finance 60, 2255-2281.
Boehmer, B. and Megginson, W. L., 1990. ‘Determinants of secondary market prices for developing country syndicated loans’, Journal of Finance 45, 1517-1540
Caporale, G. M, Cipollini, A. and Spagnolo, N., 2005. ‘Testing for contagion: a conditional correlation analysis’, Journal of Empirical Finance 12, 476-489
Cariboni, J. and Schoutens, W., 2004. ‘Pricing credit default swaps under Levy model’, working paper, European Commission and K.U. Leuven.
Chacko, G. and Viceira, L. M., 2003. ‘Spectral GMM estimation of continuous-time processes’, Journal of Econometrics 116, 259-292.
Chan-Lau, Jorge A., 2003. ‘Anticipating credit events using credit default swaps, with an application to sovereign debt crises’, IMF working paper.
Cherubini, U., Luciano, E. and Vecchiato, W., 2004. ‘Copula method in finance’, John Wiley & Sons, Ltd.
Clemente, A. and Romano, C., 2004. ‘Measuring and optimizing portfolio credit risk: A copula-based approach’, Economic Notes 33, 325-357.
Collin-Dufresne, P., Goldstein, R. S. and Martin, J. S., 2001. ‘The determinants of credit spread changes’, Journal of Finance 56, 2177-2207.
Cossin, D. and Hricko, T., 2001. ‘Exploring for the determinants of credit risk in credit default swap transaction data’, working paper, University of Lausanne.
Dages, B.G., Palmer, D. and Turney, S., 2005. ‘An overview of the emerging market credit derivatives market’, Federal Reserve Bank of New York
Dias, A. and Embrechts, P., 2003. ‘Dynamic copula models for multivariate high-frequency data in finance’, working paper, Department of Mathematics, ETH Zurich University in Switzerland.
Didier, T., Mauro, P. and Schmukler, S., 2006. ‘Vanishing contagion?’, IMF working paper.
Drost, F.C., Nijman,T.E. and Werker, B.J.M., 1998. ‘Estimation and testing in models containing both jumps and conditional heteroskedasticity’, Journal of Business and Economic Statistics 16, 237-243.
Duffie,D., 1999. ‘Credit swap valuation’, Financial Analysts Journal 55, 73-87.
Dungey, M. and Tambakis, D., 2003. ‘Identifying international financial contagion: Progress and Challenges’, Oxford University Press Inc, USA.
Durbin, Erik and Ng, D., 2005. ‘The sovereign ceiling and emerging market corporate bond spreads’, Journal of International Money and Finance 24, 631-649.
Edison, H., 2000. ‘Do indicators of financial crises work? An evaluation of an early warning system’, Federal Reserve Board Working Paper in International Finance No. 2000-675.
Elkinawy, S., 2005. ‘Mutual fund preferences for Latin American equities surrounding financial crises’, Emerging Market Review 6, 211-237.
Fang, H. and Fang, K., 2002. ‘The meta-elliptical distributions with given marginals’, Journal of Multivariate Analysis 82, 1-16.
Favero, C.A. and Giavazzi, F., 2002. ‘Is the international propagation of financial shocks non-linear? Evidence from the ERM.’, Journal of International Economics 51, 231-246.
Forbes, K.J., 2004. ‘The Asian flu and Russian virus: the international transmission of crises in firm-level data’, Journal of International Economics 63, 59-92
Forbes, K.J. and Rigobon, R., 2002. ‘No contagion, only interdependence: measuring stock market comovements’, Journal of Finance 57, 2223-2261.
Frey, R., and McNeil, A.J., 2001. ‘VaR and expected shortfall in portfolios of dependent credit risks: Conceptual and practical insights’, Journal of Banking and Finance 26, 1317-1334.
Friend, A. and Rogge, E., 2005. ‘Correlation at first sight’, Economic Notes 34, 155-183.
Galiani, S. S., 2003. ‘Copula functions and their application in pricing and risk managing multi-name credit derivatives products’, working paper, University of London.
Gande, A. and Parsley, D.C., 2005. ‘News spillovers in the sovereign debt market’, Journal of Financial Ecnomics 75, 691-734.
Gelos, R. G. and Wei, S.J., 2005. ‘Transparency and International Portfolio Holdings’, The Journal of Finance LX, 2987-3020
Giesecke, K., 2002. ‘Correlated Default, incomplete information, and the term structure of credit spreads’, a dissertation in Humboldt University.
Giesecke, K., 2004. ‘Credit risk modeling and valuation: An introduction’, published in Credit risk: Models and Management 2nd edition, London.
Giesecke, K., 2004. ‘Correlated default with incomplete information’, Journal of Banking and Finance, 28, 1521-1545.
Glick, R. and Rose, A. K., 1999. ‘Contagion and trade: Why are currency crises regional?’, Journal of International Money and Finance 18, 603-617.
Goderis, B. and Wagner, W., 2005. ‘Credit derivatives and sovereign debt crises’, working paper, University of Cambridge and Tilburg.
Han, Ki C, Lee, S.H and Y. Suk, D, 2003. ‘Mexican peso crisis and its spillover effects to emerging market debt’, Emerging Markets Review l4, 310-326
Heikkinen, V-P. and Kanto, A., 2002. ‘Value-at-risk estimation using non-integer degrees of freedom of Student’s distribution’, The Journal of Risk 4, 77-84
Herz, B and Tong, H. 2003. ‘Debt and currency crisis’, University of Bayreuth discussion paper.
Hull, J. C and White, A., 2000. ‘Valuing credit default swaps I: no counterparty default risk’, Journal of Derivatives 8, 29-40
Hull, J. C and White, A, 2000. ‘Valuing credit default swaps II: modeling default correlation’, Journal of Derivatives 8, 12-22
Joe, H., 1997. ‘Multivariate models and dependence concepts’, Chapman and Hall/CRC, London.
Joe, H. and Xu, J. J., 1996. ‘The estimation method of inference functions for margins for multivariate models, working paper, Department of Statistics, University of British Columbia Technical Report no. 166.
Kaminsky, G. and Reinhart, C.M., 2000. ‘ On crises, contagion and confusion’, Journal of International Money and Finance 51, 145-168
Kaminsky, G. and Reinhart, C. M., 2002. ‘Financial markets in times of distress’, Journal of Development Economics 69, 451-470.
Kraay, A. Loayza, N. and Serven, L., 2004. ‘Country portfolios’, The World bank working paper.
Li, D.X., 2000. ‘On default correlation: A copula function approach’, Journal of Fixed Income, 9, 43-54.
Longin, F. and Solnik, B., 2001. ‘Extreme correlation of international equity market’, Journal of Finance 56, 645-676
Lu, C.C., 2005. ‘Evaluating the international CAPM from a distributional perspective’, working paper, Columbia University.
Mashal, R. and Zeevi, A., 2002. ‘Beyond correlation: Extreme co-movements between financial assets’, working paper, Columbia University.
Mason, S.P. and Bhattacharya, S., 1981. ‘Risky debt, jump process, and safety covenants’, Journal of Financial Economics 9, 281-307.
Mauro, P., Sussman, N. and Yafeh, Y., 2002. ‘Emerging market spreads: then versus now’, The Quarterly Journal of Economics 117, 695-733
Meneguzzo, D. and Vecchiato, W., 2004. ‘Copula sensitivity in collateralized debt obligations and basket default swaps’, The Journal of Futures Markets 24, 37-70.
Neftci, S,, Andre, O. S. and Lu, Y., 2005. ‘Credit default swaps and financial crisis prediction’, working paper, City University of New York.
Nelson, R. B., 1999. ‘An introdution to copula’, Springer-Verlag New Youk, Inc.
Norden, L. and Weber, M., 2004. ‘ The comovement of credit default swap, bond and stock markets: an empirical analysis’, CFS working paper
Pan, J., 2002. ‘The jump-risk premia implicit in options: evidence from an integrated time-series study’. Journal of Financial Economics 63, 3-50
Peter, M. and Grandes, M., 2005. ‘How important is sovereign risk in determining corporate corporate default premia? The case of South Africa’, IMF working paper.
Poon, S. H., Rockinger, M. and Tawn, J., 2004. ‘Extreme value dependence in financial markets : Diagnostics, models, and financial implications’. The Review of Financial Studies 17, 581-610
Quintos, C., Fan, Z. and Phillips, P.C.B., 2001. ‘Structural change test in tail behavior and the Asian crisis’, Review of Economic Studies 68, 633-663.
Reinhart, C. M. 2002. ‘Default, currency crises and sovereign credit ratings’, NBER working paper No. 8738.
Rigobon, R., 2002. ‘The curse of non-investment grade countries’, Journal of Development Economics 69, 423-449.
Rodriguew, J. C., 2003. ‘Measuring Financial Contagion: A copula approach’, working paper, EURANDOM.
Sander, H. and Kleimeier, S., 2000. ‘Contagion and Causality: An empirical investigation of four Asian crisis episodes’, unpublished, University of Applied Science Cologne and Maastricht University. .
Skinner, F. S. and Townend, T. G., 2002. ‘An empirical analysis of credit default swaps’, International Review of Financial Analysis 11, 297-309.
Susmel, R., 2001, ‘Extreme observations and diversification in Latin American emerging equity markets’, Journal of International Money and Finance 20, 971-986
Yuan, K., 2002. ‘The liquidity service of sovereign bonds’, working paper, University of Michigan Business School.
Zhang, B. Y., Zhou, H. and Zhu, H., 2005. ‘Explaining credit default swap spreads with equity volatility and jump risks of individual firms’, BIS working paper No.181.
Zhang, F. X., 2003. ‘What did the credit market expect of Argentina default? Evidence from default swap data’, working paper, Federal Reserve Board, Division of Research and Statistics.
Zhou, C., 2001. ‘The term structure of credit spreads with jump risk’, Journal of Banking and Finance 25, 2015-2040.
Zhou, C., 2001. ‘An analysis of default correlation and multiple defaults’, Review of Financial Studies 14, 555-576.
Zhu, H., 2005. ‘An empirical comparison of credit spreads between the bond market and the credit default swap market’, working paper, Bank for International Settlement