This paper investigates a two-factor affine model for the credit spreads on corporate bonds. The first factor can be interpreted as the level of the spread, and the second factor is the volatility of the spread. The riskless interest rate is modeled using a standard two-factor affine model, thus...

This paper develops a reduced form model of interest rate swap spreads. The model accommodates both the default risk inherent in swap contracts and the liquidity difference between the swap and Treasury markets. We use an extended Kalman filter approach to estimate the model parameters. The...