2018年12月3日（周一） 2:30-4:30 p.m.
We propose a new measure of the implied volatility of Credit Default Swap (CDS): CIV. Specifically, we employ the unite recovery claim to bridge CDS and deep out-of-the-money put options of the same company, and back out CIV via the binomial tree. Our CIV measure strongly commoves with the Option Implied Volatility (OIV), with a correlation coefficient of 0.8. Based on the standardized difference between CIV and OIV, we construct CDS and option trading strategies. Without taking transaction costs into account, the long-short CDS trading strategy achieves an annualized return of 58.29% and a Sharpe ratio of 2.97, which can hardly be explained by non-parametric skewness and volatility risk.
Yukun Shi holds a PhD in Finance from Durham University and is a CFA Charter holder. He is currently an Associate Professor in Accounting and Finance at Adam Smith Business School, University of Glasgow. Prior to coming to Glasgow, he taught at the University of Leicester and Middlesex University. His research interests lie in energy and environmental finance, derivatives markets, risk management, asset pricing, corporate finance and fintech. Dr. Shi is also an academic consultant in Moody’s Analytics.