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We ask whether a standard structural model (Black and Cox (1976)) is able to explain credit spreads on corporate bonds and, in contrast to much of the literature, we find that the model matches the level of investment grade spreads well. Model spreads for speculative grade debt are too low and...
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Credit spreads are the yields of risky debt securities minus risk-free rates. The finance literature has long argued which share of them is due to credit risk and which share results from other factors. We suggest a novel set of multiple quasi-natural experiments based on government guarantees...
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combinations of the factors and regimes. The hazard rates incorporate both liquidity and credit components, that we aim at … disentangling. The estimation suggests that a substantial share of the changes in euro-area yield differentials is liquidity … risk premia that are incorporated in spreads. Once liquidity-pricing effects and risk premia are filtered out of the …
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Within bank activities, which is normally defined as the joint exercise of savings collection and credit supply, risk-taking is natural, as in many human activities. Among risks related to credit intermediation, credit risk assumes particular importance. It is most simply defined as the...
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