We disentangle U.S. credit spreads' evolution into two distinct parts resulting from market risk and default risk influences. We consider credit spreads (versus Treasury yields) as a credit risk proxy and S&P500 stock index as a market/systematic risk proxy. Such data allow for achieving a...

The ground-breaking Black-Scholes-Merton model has brought about a generation of derivative pricing models that have been successfully applied in the financial industry. It has been a long standing puzzle that the structural models of credit risk, as an application of the same modeling paradigm,...