Bharath and Shumway (2008) provide evidence that shows that it is the functional form of Merton’s (1974) distance to default (DD) model that makes it useful and important for predicting defaults. In this paper, we investigate whether the default predictability of the Merton DD model would be...

This paper elucidates the importance of the information content of text information from public sources, including newspapers and corporate filings, has for credit market investors. We adopted news coverage and news tone to quantify text information from news articles. We captured the...

This paper aims to explore strategies used for hedging credit default swap (CDS) risks. By analyzing the AIG financial crisis in 2008, we understand the nature of CDS and why AIG incurred huge losses. In addition, we investigate other financial products that can be used to hedge CDS risks....