No consensus has yet emerged from the existing credit risk literature on how muchof the observed corporate-Treasury yield spreads can be explained by credit risk. In thispaper, we propose a new calibration approach based on historical default data and showthat one can indeed obtain consistent...

We show that credit risk accounts for only a small fraction of the observed corporate-Treasury yield spreads for investment grade bonds of all maturities, with the fraction smaller for bonds of shorter maturities; and that it accounds for a much higher fraction of yield spreads for junk bonds....

No consensus has yet emerged from the existing credit risk literature on how much of the observed corporate-Treasury yield spreads can be explained by credit risk. In this paper, we propose a new calibration approach based on historical default data and show that one can indeed obtain consistent...

We show that credit risk accounts for only a small fraction of yield spreads for investment-grade bonds of all maturities, with the fraction lower for bonds of shorter maturities, and that it accounts for a much higher fraction of yield spreads for high yield bonds. This conclusion is shown to...