Global debt as a determinant of notional amounts outstanding changes of credit default swaps in non-financial institutions
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Czech_Global debt as a determinant of notional_1.pdf (651.82 KB)
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Date
2020
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Institute of Economics, Polish Academy of Sciences
Abstract
The paper aims to determine the impact of global debt on the notional amounts outstanding of credit default swap contracts (CDS) used in non-financial institutions. CDS are innovative derivative instruments primarily used in credit risk management. In this study, the notional amounts outstanding of CDS concluded by non-financial institutions in 2005-2018 and the degree of involvement of non-financial institutions on the CDS market were examined, based on a dynamics analysis. The results of the analysis indicated that the share of non-financial institutions in the CDS market is decreasing due to the over-the-counter (OTC) market regulations introduced in 2010. Then, the effect of selected debt ratios on the CDS notional amounts outstanding was examined by means of multiple linear regression analysis. This analysis has established that the change in the size of global debt ratios determines the changes in the notional amounts outstanding of non-financial institutions CDS. The study confirmed a correlative relationship between global debt and the notional amounts outstanding of non-financial institution CDS. It has been proved that non-financial institutions are not interested in concluding CDS contracts in the conditions of increasing global debt. Despite the many possibilities of using CDS in non-financial institutions, up to now, these issues have rarely been included in research and studies. Based on a literature study, it was found that the issue of non-financial institutions CDS remains very poorly recognized. The study indicates that the use of CDS in non-financial institutions gives the possibility of managing global credit risk.
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Citation
Czech, M. (2020). Global debt as a determinant of notional amounts outstanding changes of credit default swaps in non-financial institutions. In A. Ujwary-Gil & M. Gancarczyk (Eds.), New Challenges in Economic Policy, Business, and Management (pp. 107-125). Warsaw: Institute of Economics, Polish Academy of Sciences.