We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...

This paper extends the baseline Merton (1974) structural default model, which is intended for static debt spreads, to a setting with dynamic debt, where leverage can be ratcheted up as well as written down through pre-specified exogenous policies. We provide a different and novel solution...

We present a new framework for the joint estimation of the default-free government term structure and corporate credit spread curves. By using a data set of liquid, German mark denominated bonds, we show that this yields more realistic spreads than traditionally obtained spread curves that...

We provide a framework for the analysis of term structures of credit spreads on corporate bonds in the presence of informational asymmetries. While bond investors observe default incidents, we suppose that they have incomplete information on the firm's assets and/or the threshold asset level at...

Using a novel data set and new proxies for rollover losses and market illiquidity, this paper finds that market illiquidity affects corporate bond spreads beyond a liquidity premium through a “rollover risk channel”. This effect is economically significant during episodes of market...

This paper examines whether rollover risk is priced on corporate bond spreads. Using a novel data set and new proxies for rollover risk and market illiquidity, the empirical analysis developed reveals that market illiquidity affects corporate bond spreads beyond a liquidity premium through a...

This paper studies the macroeconomic determinants of the term structures of Treasury yields, corporate bond credit spreads, and corporate bond liquidity spreads in a unified no-arbitrage framework. Four economic factors, monetary conditions, inflation, real output, and financial market...

This article studies the economic factors behind corporate default risk premia in Europe during the period 2006–2010. We employ information embedded in Credit Default Swap (CDS) contracts to quantify expected excess returns from the underlying bonds in market-wide default circumstances. We...

We present a structural method for measuring the upper bound for the illiquidity risk of liabilities issued by a levered firm. The method calculates the upper bound of illiquidity spread of a corporate bond given its duration and the issuing firm's asset risk and leverage ratio. Consistent with...

The spread risk premium component of credit default swap (CDS) spreads represents a compensation demanded by protection sellers for future changes in CDS spreads caused by unpredictable fluctuations in the reference entity's risk-neutral default intensity. This paper defines and estimates a...