Linking Credit Risk Premia to the Equity Premium
نویسندگان
چکیده
We estimate the equity premium using CDS spreads and structural models of default. Our estimates yield equity premia of 6.50% (U.S.), 5.44% (Europe) and 6.21% (Asia) based on 5year CDS spreads from 2003-2007. Due to some conservative assumptions these estimates are upper limits for the equity premium. Using 3-, 7and 10-year CDS maturities yields similar results and o ers an opportunity to estimate the term structure of risk premia. Although our estimator is developed in a Merton framework it is robust with respect to model changes ( rst-passage, strategic default, Du e/Lando (2001) framework).
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