Contingent Claim Analysis

Introduction

The difference between put price and CDS price as a measure of firm’s contribution to systemic risk based on Gary and Jobst (2010).

References

• Gary and Jobst (2010), Systemic contingent claims analysis: Estimating market-implied systemic risk, IMF Working Papers, No 13/54.

• Bisias, Flood, Lo, and Valavanis (2012), A survey of systemic risk analytics, Annual Review of Financial Economics, 4, 255-296.

API

class frds.measures.ContingentClaimAnalysis

Contingent Claim Analysis

__init__() → None

static estimate(equity: float, volatility: float, risk_free_rate: float, default_barrier: float, time_to_maturity: float, cds_spread: float) → Tuple[float, float]

Systemic risk based on contingent claim analysis (CCA).

Parameters:

• equity (float) – the market value of the equity of the firm.

• volatility (float) – the volatility of equity.

• risk_free_rate (float) – the risk-free rate in annualized terms.

• default_barrier (float) – the face value of the outstandind debt at maturity.

• time_to_maturity (float) – the time to maturity of the debt.

• cds_spread (float) – the CDS spread for the firm.

Returns:

A tuple of put price and the firm’s contribution to the systemic risk indicator (put price - CDS put price).

Return type:

Tuple[float, float]

Examples

>>> from frds.measures import ContingentClaimAnalysis
>>> cca = ContingentClaimAnalysis()
>>> cca.estimate(
...     equity=5,
...     volatility=1.2,
...     risk_free_rate=0.02,
...     default_barrier=10,
...     time_to_maturity=20,
...     cds_spread=1.5,
... )
(6.659378336338627, 3.3467523905471133)