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Master Thesis

The Liar equilibrium in naked sovereign CDS trading : a financial economic approach

Abstract : This master's thesis aims at studying the impact of naked sovereign CDS trading by establishing a sequential trading model where the evolution of the market microstructure bid-ask spread is taken into account. The underlying-asset-covered positions as welle as the naked positions are distinguished according to their different motifs in trading CDS. The main findings of our model suggest that the naked traders always prefer to deviate from the covered traders' equilibrium strategies in pursuit of the maximum profit, by manipulating following traders' belief and deceiving them into the wrong informational cascade. Consequently, an earlier start of a more possible wrong cascading effect occurs, resulting in a less accurate market estimation of the underlying country's default risk.
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Master Thesis
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https://dumas.ccsd.cnrs.fr/dumas-00651782
Contributor : Centre de Documentation Du Centre d'Économie de la Sorbonne <>
Submitted on : Wednesday, December 14, 2011 - 11:01:29 AM
Last modification on : Monday, February 22, 2021 - 3:26:02 PM
Long-term archiving on: : Thursday, March 15, 2012 - 2:26:43 AM

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  • HAL Id : dumas-00651782, version 1

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Qiaoyang Zheng. The Liar equilibrium in naked sovereign CDS trading : a financial economic approach. Risk Management [q-fin.RM]. 2011. ⟨dumas-00651782⟩

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