Basically, you need at least two pieces of information: - The price spread of the CDS - The expected recovery rate (RR) - how much money will the creditors get back (which in most cases is more than zero).
I would be very surprised if there will not be some players in the financial markets killed by a Russian default. There are always people who are “picking up nickels in front of a steam roller”. But I have no prediction whether there will be one or more systemically relevant institutions being hit by this.
Here is an IMF working paper explaining the process (there is not one single formula for that, so we don’t know exactly how Bloomberg has calculated it). Market-Based Estimation of Default Probabilities and its Application to Financial Market Surveillance
Basically, you need at least two pieces of information:
- The price spread of the CDS
- The expected recovery rate (RR) - how much money will the creditors get back (which in most cases is more than zero).
However, in the case of Russia it seems to be a bit complicated:
Dislocation in Russian debt prices suggests CDS won’t work
(The article is a few days old; I don’t know if the current prices still show this problem).
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I would be very surprised if there will not be some players in the financial markets killed by a Russian default. There are always people who are “picking up nickels in front of a steam roller”. But I have no prediction whether there will be one or more systemically relevant institutions being hit by this.