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A Study on the Relationship of European CDS and Sovereign Debt Market Based on the STAR Method

Author LiangTao
Tutor ShenPeiLong
School Shanxi University of Finance
Course Finance
Keywords The European sovereign debt crisis Smooth transition autoregreeivemodel Sovereign CDS market Sovereign Bond market
Type Master's thesis
Year 2014
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Affected by global financial crisis, the European sovereign risk surged. At the sametime, the European sovereign debt crisis has become an important factor to globalfinancial and economy stability. As the factors of sovereign debt risk are complex, andsome leading factors are impossible to quantitative analysis, it has become an importantresearch topic for financial regulatory authorities and international investors.After reviewing the theoretical literature review about the analysis of the sovereignCDS market and the sovereign bond market on the crisis, t-his paper summarizedand analyzed the current situation of the sovereign CDS market and the bond market. Itexplained the Smooth Transition Autoregressive Model Theory,and leaded to thetheoretical basis of this article. This paper takes Smooth Transition AutoregressiveModle to analysis the contribution of these two markets in the process of pricediscovery.This paper explain the reasons for the outbreak of the debt crisis in Europe onboth internal and external side, and mainly analysis the factors of the econ-omic structu-re, social structure, the design of the EU’s institute-ions and financial int-ernal correlate-on aspects. And on the basis of that, do the summary and analysis of the previoussovereign debt crisis solute-on.Finally, combine the empirical analysis results did the analysis about whether the s-overeign CDS will enhance the national refinancing cost in the crisis, and put forward the policy proposals to solve the European de-bt crisis. At last, summarizes the problemswhich should be pay attention in the CDS market in our country as well as prevention measures to the sovereign crisis.

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