Essays on the credit default swap market of sovereign bonds

Credit Default Swap (CDS) is the building stone of hedging strategies for credit exposures, and the basis of more advanced credit derivative products. The valuation of the contractual annum payment of a CDS product has also established a new pricing system of credit default risk, in relation to the traditional yield spreads implied from bond prices.;The focus of this dissertation is the CDS market of sovereign bonds, especially those issued by developing or newly developed countries. There are two essays included: the first essay is a steady state analysis on the implied benchmark rate in sovereign CDS market, the second essay is a study on the dynamic relationship of CDS rates and yield spreads. In the first essay, the implied benchmark is computed and compared with observable benchmarks such as US Treasury yield and LIBOR rate. This reveals that the implied benchmark rate is more related to US Treasury yield than the market favorite-LIBOR rate. It is also observed that there is a pricing gap between the CDS rates of sovereigns at investment grade and those at speculative grades.;The second essay examines the relationship of CDS rates and yield spreads both in long run and in short run. It is found that their equilibrium can only be reached in a long run; price disparity exists in a short run; credit price discovery is dominated in bond market other than CDS market. Among the determinants of the price disparity, liquidity variable contributes to a half of the overall explanatory power. Its impacts on the value of price disparity and its volatility are scrutinized. All the findings aim at application in academic research or trading strategies.