Currency risk is embedded within CDS prices; if a country defaults, the value of its currency is likely to drop, to the detriment of investors with CDS exposure to that currency. The recently widening gap between European sovereign CDS priced in EUR and those priced in USD may therefore herald rising distress for the European Union as a whole.
The pricing of corporate credit can be succinctly understood via the credit-implied volatility (CIV) surface.
How can asset allocators quantify the effects of political risk on financial markets? A simple and tractable empirical approach.
A Jack Treynor Prize-winning paper co-authored by a Two Sigma researcher provides a convenient method for summarizing risk exposure in credit portfolios.