Healthy... Distress... Default
Pricing of Securities
2019-10-30 v2 Mathematical Finance
Portfolio Management
Abstract
We discuss a simple, exactly solvable model of stochastic stock dynamics that incorporates regime switching between healthy and distressed regimes. Using this model, which is analytically tractable, we discuss a way of extracting expected returns for stocks from realized CDS spreads, essentially, the CDS market sentiment about future stock returns. This alpha/signal could be useful in a cross-sectional (statistical arbitrage) context for equities trading.
Cite
@article{arxiv.1910.08531,
title = {Healthy... Distress... Default},
author = {Zura Kakushadze},
journal= {arXiv preprint arXiv:1910.08531},
year = {2019}
}
Comments
6 pages; no changes to the paper; a LaTeX command added for URLs to display properly