| dc.description.abstract | In this paper the linear relationship between theoretical determinants of default risk and default swap spread is examined and adds to general literature using multivariate regression to explain the development of the CDS spread. The paper yields new insight on the relationship between traditional credit variables and the CDS spread during periods of financial turmoil; After running multivariate regressions on 140 000 CDS spreads for 181 large-cap companies in the period from January 2007 to December 2009, historical volatility was rejected on an average basis as an explanatory factor for the CDS spread, contrary to previous findings in academic literature. Furthermore, only two variables, firm-specific implied volatility and leverage had a significant impact on an average basis for the CDS spread. The results were tested by running cross-sectional regression for 10 different business sectors resulting in the yield on corporate bonds being included as a third variable with a statistical significant impact on the CDS spread. | en |
