Manufactured Defaults and the Use of Credit Default Swaps

01 December 2019
Dr. Faten Sabry, Dr. Ignacio Franceschelli, David Cen

Managing Director Dr. Faten Sabry, Senior Consultant Dr. Ignacio Franceschelli, and Senior Analyst David Cen have published “Manufactured Defaults and the Use of Credit Default Swaps.” In their article, the authors demonstrate how economic analysis of credit default swaps (CDS) can be used to assess allegations related to CDS and a company’s creditworthiness. Using RadioShack as an example, they demonstrate that a large number of outstanding CDS contracts do not necessarily indicate that the default of a company is being forced or delayed for the benefit of specific investors. The authors’ statistical analysis, together with background information on the companies in question, could help investigators of a CDS dispute identify possible reasons for changes in CDS prices.