In this paper, we examine the dynamic behavior of credit spreads on corporate bond portfolios. We propose an econometric model of credit spreads that incorporates portfolio rebalancing, the near unit root property of spreads, the autocorrelation in spread changes, the ARCH conditional...

No consensus has yet emerged from the existing credit risk literature on how muchof the observed corporate-Treasury yield spreads can be explained by credit risk. In thispaper, we propose a new calibration approach based on historical default data and showthat one can indeed obtain consistent...