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An Evaluation of Multi-Factor Cir Models Using Libor, Swap Rates, and Cap and Swaption Prices

Kaplin, Andrew - 2010

We evaluate the classical Cox, Ingersoll and Ross (1985) (CIR) model using data on LIBOR, swap rates and caps and … swaptions. With three factors the CIR model is able to fit the term structure of LIBOR and swap rates rather well. The model is … able to match the hump shaped unconditional term structure of volatility in the LIBOR-swap market. However, statistical …

Persistent link: https://www.econbiz.de/10012763074

Corporate Yield Spreads : Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market

Longstaff, Francis A. - 2004

We use the information in credit-default swaps to obtain direct measures of the size of the default and nondefault components in corporate spreads. We find that the majority of the corporate spread is due to default risk. This result holds for all rating categories and is robust to the...

Persistent link: https://www.econbiz.de/10012785748

Endogenous Liquidity and Defaultable Bonds

He, Zhiguo - 2012

This paper studies the interaction between fundamental and liquidity for defaultable corporate bonds that are traded in an over-the-counter secondary market with search frictions. Bargaining with dealers determines a bond's endogenous liquidity, which depends on both the firm fundamental and the...

Persistent link: https://www.econbiz.de/10013100361

Systematic Risk, Debt Maturity, and the Term Structure of Credit Spreads

Chen, Hui - 2012

We build a dynamic capital structure model to study the link between firms' systematic risk exposures and their time-varying debt maturity choices, as well as its implications for the term structure of credit spreads. Compared to short-term debt, long-term debt helps reduce rollover risks, but...

Persistent link: https://www.econbiz.de/10013100984

Taxes, Default Risk, and Yield Spreads

Yawitz, Jess B. - 2008

This paper represents an extension and integration of recent empirical and theoretical research on default risk and taxability. The purpose of the paper is to develop and test a model of interest rate spreads which incorporates both the effect of taxes and differences in default probabilities in...

Persistent link: https://www.econbiz.de/10012774733

Dynamic Dispersed Information and the Credit Spread Puzzle

Albagli, Elias - 2014

We develop a dynamic nonlinear, noisy REE model of credit risk pricing under dispersed information that can theoretically and quantitatively account for the credit spread puzzle. The first contribution is a sharp analytical characterization of the dynamic REE equilibrium and its comparative...

Persistent link: https://www.econbiz.de/10013061461

Credit Spreads and Business Cycle Fluctuations

Gilchrist, Simon - 2011

This paper examines the evidence on the relationship between credit spreads and economic activity. Using an extensive data set of prices of outstanding corporate bonds trading in the secondary market, we construct a credit spread index that is--compared with the standard default-risk...

Persistent link: https://www.econbiz.de/10013125576

Quantifying Liquidity and Default Risks of Corporate Bonds Over the Business Cycle

Chen, Hui - 2018

We develop a structural credit risk model to examine how the interactions of liquidity and default risk affect corporate bond pricing. By explicitly modeling debt rollover and by endogenizing the holding costs via collateralized financing, our model generates rich links between liquidity risk...

Persistent link: https://www.econbiz.de/10012937688

Credit Risk in the Euro Area

Gilchrist, Simon - 2014

We construct credit risk indicators for euro area banks and non-financial corporations. These are the average spreads on the yield of euro area private sector bonds relative to the yield on German federal government securities of matched maturities. The indicators are also constructed at the...

Persistent link: https://www.econbiz.de/10013055501

Option-Based Credit Spreads

Culp, Christopher L. - 2014

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...

Persistent link: https://www.econbiz.de/10013039754

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