Research On Stock Index And CDS Pricing And The Correlation Of Them

The subprime mortgage crisis broke out in2007is a crisis that spread most deeplysince the1930s.Both in terms of economy or finance, the financial crisis caused ahuge impact on all of the United States and the rest of the world. Many scholarsbelieve that CDS is one of the important factors of the conduction of the financialcrisis.Generally believing that the risk of the credit derivatives market is higher thanthe traditional financial market such as the stock market, there may be great relevancebetween the stock market and the credit derivatives market. In the theory part, thispaper firstly analyses the effect of GDP, the risk-free interest rate, inflation, moneysupply, exchange rate, the per capita disposable income and the international balanceof payments on the stock price index and the CDS index, and then analyzes therelationship between stock price index and the CDS price index. In the empirical part,this paper firstly uses the VAR model to test the influence of the gross domesticproduct (GDP), the risk free rate (R), the inflation rate (CPI), the dollar index (thearticle referred to as DL), money supply (M2), the per capita disposable income (thearticle referred to as INCOME) and the international balance of payments (the articlereferred to as EX) on the Dow-Jones Average; And then testing the influence of therisk-free rate of interest, inflation, the dollar index, money supply and per capitadisposable income on the the CDS index; Finally, using descriptive statistics,correlation analysis, analysis of time trend line and Granger test to test the correlationof the Dow-Jones Average and CDS index. The empirical results show that: GDP andthe dollar index have a big impact on the Dow Jones index; Disposable income, theU.S. dollar index and the money supply have a big impact on the CDS index; There isa greater relevance between stock market and CDS market, and the risk between thetwo markets will conduct to each other.