Buyers of risk in CDS market highly exposed, ECB paper finds
Researchers analyse credit default swap market using data from 2011 to 2014
A working paper published by the European Central Bank analyses the credit default swaps (CDS) market “as a network of risk transfers among counterparties”.
In How does risk flow in the credit default swap market?, Marco D’Errico, Stefano Battiston, Tuomas Peltonen and Martin Scheicher argue that under the right conditions a “bow-tie network architecture” can endogenously emerge as a result of intermediation in the CDS market.
This architecture, the authors argue, “shows three distinct sets of
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