Reduced-form models of default calibrated to expected default losses and comovements between default losses and an equity-based pricing kernel generate CDS spreads that tend to fall below historical values. In frictionless markets, resolving this credit spread puzzle requires credit-market...

In this paper we develop a joint non-parametric approach to the problem of the decomposition of bond yields and CDS spreads. The proposed approach is essentially an infinite-dimensional modification of the Heath-Jarrow-Morton framework and is general enough to capture even very non-trivial...

Market-implied ratings gained importance as efficient early warnings of official credit rating migrations. We build a two-dimensional implied rating system that gathers information from both the bond and the CDS markets. The system is able to outdo each of the corresponding one-dimensional...