Research Article
Weight of the Default Component of CDS Spreads: Avoiding Procyclicality in Credit Loss Provisioning Framework
Table 12
Adjustment coefficient for below BB- grade to be applied to BB- WDCs: CDS-based ECL versus BVAL price calibration.
| Credit Metrics | Reporting Date |
| Frontier Communication bond: FTR 7.625 04/15/24 | 29/12/2017 | 31/1/2018 | 28/2/2018 | 30/3/2018 | BVAL mid price (Px) | 63.16 | 66.23 | 63.55 | 62.62 | Lifetime ECL based on BVAL (ECL_BVAL = 1 - Px) | 36.84 | 33.77 | 36.46 | 37.38 | Lifetime ECL based on CDS spreads and BB- WDCs | 34.50 | 30.48 | 29.21 | 31.35 | Adjustment coefficient to WDCs equating the ECLs | 1.09 | 1.14 | 1.33 | 1.26 |
| Average adjustment coefficient to the BB- WDC | 1.20 |
| Astaldi S.p.A. bond: ASTIM 4.875 06/21/24 | 29/12/2017 | 31/1/2018 | 28/2/2018 | 30/3/2018 | BVAL mid price (Px) | 53.12 | 66.90 | 61.52 | 59.72 | Lifetime ECL based on BVAL (ECL_BVAL = 1 - Px) | 46.88 | 33.10 | 38.48 | 40.28 | Lifetime ECL based on CDS spreads and BB- WDCs | 50.61 | 34.13 | 62.26 | 37.46 | Adjustment coefficient to WDCs equating the ECLs | 0.89 | 0.96 | 0.49 | 1.10 |
| Average adjustment coefficient to the BB- WDC | 0.86 |
| Sears Holding Corp bond: SHLD 8 12/15/19 | 29/12/2017 | 31/1/2018 | 28/2/2018 | 30/3/2018 | BVAL mid price (Px) | 50.94 | 48.00 | 42.75 | 33.75 | Lifetime ECL based on BVAL (ECL_BVAL = 1 - Px) | 49.06 | 52.00 | 57.25 | 66.25 | Lifetime ECL based on CDS spreads and BB- WDCs | 43.45 | 46.70 | 53.44 | 54.42 | Adjustment coefficient to WDCs equating the ECLs | 1.17 | 1.15 | 1.10 | 1.34 |
| Average adjustment coefficient to the BB- WDC | 1.19 |
| Windstream Services bond: WIN 6.375 08/01/23 | 29/12/2017 | 31/1/2018 | 28/2/2018 | 30/3/2018 | BVAL mid price (Px) | 61.88 | 58.89 | 60.22 | 57.61 | Lifetime ECL based on BVAL (ECL_BVAL = 1 - Px) | 38.12 | 41.11 | 39.78 | 42.39 | Lifetime ECL based on CDS spreads and BB- WDCs | 36.23 | 37.73 | 41.10 | 44.47 | Adjustment coefficient to WDCs equating the ECLs | 1.07 | 1.12 | 0.96 | 0.94 |
| Average adjustment coefficient to the BB- WDC | 1.02 |
| Mean value of adjustment coefficient to the BB- WDC | 1.07 |
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