Abstract
We document the dynamics of joint credit risk by relying on a copula approach using weekly CDS for the UK banks. The joint credit risk has dramatic variation during 2007-2015 and is significantly affected by the monetary policies implemented by the Bank of England and European Central Bank. We show that asymmetric and dynamic dependence between CDS spreads are closely associated with the joint default probability. We also find that both copula correlation and tail dependence between CDS spreads contain useful information for not only explaining current joint default probabilities but also predicting systemic credit events in the banking sector.
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