Author: Varqá KhademPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Default Hazards and the Term Structure of Credit Spreads in a Duopoly
Author: Varqá KhademThe Term Structure of Credit Spreads and the Economic Activity
Author: Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
We estimate arbitrage-free term structure models of US Treasury yields and spreads on BBB and B-rated corporate bonds in a doubly- stochastic intensity-based framework. A novel feature of our analysis is the inclusion of macroeconomic variables - indicators of real activity, inflation and financial conditions - as well as latent factors, as drivers of term structure dynamics. Our results point to three key roles played by macro factors in the term structure of spreads: they have a significant impact on the level, and particularly the slope, of the curves; they are largely responsible for variation in the prices of systematic risk; and speculative grade spreads exhibit greater sensitivity to macro shocks than high grade spreads. In addition to estimating risk-neutral default intensities, we provide estimates of physical default intensities using data on Moody's KMV EDFs"!as a forward-looking proxy for default risk. We find that the real and financial activity indicators, along with filtered estimates of the latent factors from our term structure model, explain a large portion of the variation in EDFs"!across time. Furthermore, measures of the price of default event risk implied by estimates of physical and risk-neutral intensities indicate that compensation for default event risk is countercyclical, varies widely across the cycle, and is higher on average and more variable for higher- rated bonds.
Recovery and Default Risk
Author: Stephen Lawrence Powell PhippsPublisher:
ISBN:
Category :
Languages : en
Pages : 292
Book Description
Systematic Risk, Debt Maturity, and the Term Structure of Credit Spreads
Author: Hui ChenPublisher:
ISBN:
Category : Economics
Languages : en
Pages :
Book Description
We build a dynamic capital structure model to study the link between firms' systematic risk exposures and their time-varying debt maturity choices, as well as its implications for the term structure of credit spreads. Compared to short-term debt, long-term debt helps reduce rollover risks, but its illiquidity raises the costs of financing. With both default risk and liquidity costs changing over the business cycle, our calibrated model implies that debt maturity is pro-cyclical, firms with high systematic risk favor longer debt maturity, and that these firms will have more stable maturity structures over the cycle. Moreover, pro-cyclical maturity variation can significantly amplify the impact of aggregate shocks on the term structure of credit spreads, especially for firms with high beta, high leverage, or a lumpy maturity structure. We provide empirical evidence for the model predictions on both debt maturity and credit spreads.
Investigating the Sources of Default Risk
Author: Gurdip BakshiPublisher:
ISBN:
Category : Default (Finance)
Languages : en
Pages : 66
Book Description
Dynamic Interactions between Interest Rate, Credit, and Liquidity Risks
Author: Ren-Raw ChenPublisher:
ISBN:
Category :
Languages : en
Pages : 50
Book Description
Using a large data set on credit default swaps, we study how default risk interacts with interest-rate risk and liquidity risk to jointly determine the term structure of credit spreads. We classify the reference companies into two broad industry sectors, two broad credit rating classes, and two liquidity groups. We develop a class of dynamic term structure models that include (i) two benchmark interest-rate factors to capture the libor and swap rates term structure, (ii) two credit-risk factors to capture the credit swap spreads of high-liquidity group of each industry and rating class, and (iii) both an additional credit-risk factor and a liquidity-risk factor to capture the difference between the high- and low-liquidity groups. Estimation shows that companies in different industry and credit rating classes have different credit-risk dynamics. Nevertheless, in all cases, credit risks exhibit intricate dynamic interactions with the interest-rate factors. Interest-rate factors both affect credit spreads simultaneously, and impact subsequent moves in the credit-risk factors. Within each industry and credit rating class, we also find that the average credit default swap spreads for the high-liquidity group are significantly higher than for the low-liquidity group. Estimation shows that the difference is driven by both credit risk and liquidity differences. The low-liquidity group has a lower default arrival rate and also a much heavier discounting induced by the liquidity risk.
Correlated Defaults, Incomplete Information, and the Term Structure of Credit Spreads
Author: Kay GieseckeThe Term Structure of CDS Spreads and Sovereign Credit Risk
Author: Patrick AugustinPublisher:
ISBN:
Category :
Languages : en
Pages : 58
Book Description
The shape of the term structure of credit default swap spreads is an informative signal about the relative importance of global and domestic risk factors to the time variation of sovereign credit spreads. Using a geographically dispersed panel of 44 countries, I show that the relative importance of global and country-specific risk in explaining sovereign credit risk varies with the sign of the slope of the term structure and the duration of its inversion. A model rationalizes how global shocks determine spread changes when the slope is positive, while a negative slope signals that domestic shocks are relatively more important.
Author: Dilip Madan
Author: Hui Chen