Modeling the Dynamics of Credit Spreads with Stochastic Volatility
نویسندگان
چکیده
منابع مشابه
Modeling the Dynamics of Credit Spreads with Stochastic Volatility
This paper investigates a two-factor affine model for the credit spreads on corporate bonds. The Þrst factor can be interpreted as the level of the spread, and the second factor is the volatility of the spread. The riskless interest rate is modeled using a standard two-factor affine model, thus leading to a four-factor model for corporate yields. This approach allows us to model the volatility ...
متن کاملEquity volatility and credit yield spreads ∗
We show that a simple structural model of credit risk is able to generate credit yield spreads for the low-rated bonds close to the historical spreads once the recent trends in the stock volatility are taken into account. We study the idiosyncratic and market volatility of stock returns in the cross-section of credit ratings. We find that the increase in the level of the firm-specific volatilit...
متن کاملCredit Risk Modeling and the Term Structure of Credit Spreads
In this paper, by applying the potential approach to characterizing default risk, a class of simple affine and quadratic models is presented to provide a unifying framework of valuing both risk-free and defaultable bonds. It has been shown that the established models can accommodate the existing intensity based credit risk models, while incorporating a security-specific credit information facto...
متن کاملModeling Credit Spreads and Ratings Migration
This paper develops a theory of bond pricing in which a firm’s instantaneous probability of default is allowed to depend on its credit rating as well as on a latent systematic factor. We examine two versions of the model, one with fixed probabilities of ratings changes and another in which the probability of rating changes varies with the systematic factor. We estimate the model in a Bayesian c...
متن کاملUncertainty, Credit Spreads, and Investment Dynamics
In the standard bond-pricing framework (e.g., Merton [1974]), the return function of holders of risky corporate debt is a concave function of the firm’s stochastic return, implying that a mean-preserving spread is associated with an increase in the bond risk premium. This feature of the standard debt contract has two important implications for the relationship between uncertainty and investment...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
ژورنال
عنوان ژورنال: Management Science
سال: 2008
ISSN: 0025-1909,1526-5501
DOI: 10.1287/mnsc.1070.0841