This paper reviews difficulties concerning a development of single-name CDS price (spread) dynamics model for the purpose of determination of margin requirements. It also discusses a possibility to construct such a model using information about respective equity prices and option implied volatilities. Finally, it presents the basic step towards the former idea demonstrating results for the CDS written on Gazprom senior debt.
The paper proposes the thorough investigation of in-sample and out-of-sample performance of five GARCH and two stochastic volatility models, estimated on the Russian financial data. The data includes prices of Aeroflot and Gazprom stocks and Ruble against US dollar exchange rates. In our analysis we use probability integral transform for in-sample comparison and Mincer-Zarnowitz regression along with classical forecast performance measures for out-of-sample comparison. Studying both the explanatory and the forecasting power of the considered models we came to the conclusion that stochastic volatility models perform equally or in some cases better than GARCH models.