01704cas a2200241 a 4500 AALejournalIMF002404 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451852912 1018-5941 BD-DhAAL BD-DhAAL Chan-Lau, Jorge. Anticipating Credit Events Using Credit Default Swaps, with An Application to Sovereign Debt Crises / Jorge Chan-Lau. Washington, D.C. : International Monetary Fund, 2003. 1 online resource (20 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students In reduced-form pricing models, it is usual to assume a fixed recovery rate to obtain the probability of default from credit default swap prices. An alternative credit risk measure is proposed here: the maximum recovery rate compatible with observed prices. The analysis of the recent debt crisis in Argentina using this methodology shows that the correlation between the maximum recovery rate and implied default probabilities turns negative in advance of the credit event realization. This empirical finding suggests that the maximum recovery rate can be used for constructing early warning indicators of financial distress. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2003/106 Full text available on IMF http://elibrary.imf.org/view/journals/001/2003/106/001.2003.issue-106-en.xml IMF e-Library