1. Europe public debt CDS history probability of "credit event"
in following 5 years
(with recovery rate = 40 %)
2400
86 % ("8:1")
gr
2000 ie 81 % ("4:1")
pt
es
1600 74 % ("3:1")
CDS points
1200
63 % ("2:1")
800 49 % ("1:1")
400
28 % ("1:2")
0 0%
12/31/2005
7/1/2006
12/31/2006
7/1/2007
12/31/2007
7/1/2008
12/30/2008
7/1/2009
12/31/2009
7/1/2010
12/31/2010
7/2/2011
12/31/2011
7/1/2012
12/31/2012

2. interest rate deltas (~ 10 year bonds *, relative to benchmark
bunds)
20% probability
de
of "credit
fr de Germany
event"
at fr France in next 5
at Austria
16% be years,
it be Belgium roughly !!
es it Italy
pt es Spain
12% ie pt Portugal
ie Ireland
70 %
gr
gr_model gr Greece
ie_model
8% pt_model 50%
es_model
it_model
be_model
4% 25%
10%
0%
0%
12/31/2009
4/1/2010
7/1/2010
9/30/2010
12/31/2010
4/1/2011
7/1/2011
10/1/2011
12/31/2011
* pt 5 years for data availability

3. Financial mechanics of
interest rate spreads / CDS / default probabilities
All cited data sources are reliable, and long term freely available
- Typical assessment of interest rates with percentage numbers for
3 month / 10 year (see e.g. http://www.economist.com/markets-data,
look for “trade exchange rates …) or
http://www.bloomberg.com/markets/rates-bonds/government-bonds/germany/)
- Typical CDS contracts for n = 5 years, with a r = 40 % “recovery rate”, cited with
points p (1 = 100 % = 10000 points, data from e.g. Markit(R) ,
shown at e.g. http://ftalphaville.ft.com/, or bloomberg
derived Default probability d = 1 - EXP(- n * p / (1-r) )
most simple, analytical approximation ONLY !
(interest) Rates and (CDS) points are normally strongly correlated