An important research area of the corporate yield spread literature seeks to measure the proportion of the spread that can be explained by factors such as the possibility of default, liquidity, tax differentials and market risk. We contribute to this literature by assessing the ability of...

Currency total return swaps (CTRS) are hybrid derivatives instruments that allow to simultaneously hedge against credit and currency risks. We develop a structural credit risk model to evaluate CTRS premia. Empirical test on a sample of 23,005 price observations from 59 underlying issuers yields...

Using a real-time random regime shift technique, we identify and discuss two different regimes in the dynamics of credit spreads during 2002-2012: a liquidity regime and a default regime. Both regimes contribute to the patterns observed in credit spreads. The liquidity regime seems to explain...

In recent years multivariate models for asset returns have received much attention, in particular this is the case for models with time varying volatility. In this paper we consider models of this class and examine their potential when it comes to option pricing. Specifically, we derive the risk...

I propose a new measure of credit risk, model implied credit spreads (MICS), which can be extracted from any structural credit risk model in which debt values are a function of asset risk and the payout ratio. I implement MICS assuming a barrier option framework nesting the Merton (1974) model...

This article studies sovereign credit spreads using a contingent claims model and a balance sheet representation of the sovereign economy. Analytical formulae for domestic and external debt values as well as for the financial guarantee are derived in a framework where recovery rate is...

While stochastic volatility models improve on the option pricing error when compared to the Black-Scholes-Merton model, mispricings remain. This paper uses mixed normal heteroskedasticity models to price options. Our model allows for significant negative skewness and time varying higher order...

Many empirical studies on credit spread determinants consider a single-regime model over the entire sample period and find limited explanatory power. We model the credit cycle independently from macroeconomic fundamentals using a Markov regime switching model. We show that accounting for...

The contingent claims analysis of the firm financing often presents a debt renegotiation game with a passive bank which does not use strategically its capability to force liquidation, contrary towhat is observed in practice. The first purpose of this paper is to introduce more strategic bank...

An important research area of the corporate yield spread literature seeks to measure the proportion of the spread explained by factors such as the possibility of default, liquidity or tax differentials. We contribute to this literature by assessing the ability of observed macroeconomic factors...