Abstract
This paper studies how corporate bond spreads vary with the business cycle.
I show that both level and slope of empirical credit spread curves are correlated
with the state of the economy, and I link this to variation in idiosyncratic jump
risk. I develop a structural credit risk model that accounts for both business cycle
and jump risk, and show by estimation that the model captures the counter-cyclical level and pro-cyclical slope of empirical credit spread curves. In addition, I provide a new procedure for estimation of idiosyncratic jump risk, which is consistent with observed shocks to firm fundamentals.
I show that both level and slope of empirical credit spread curves are correlated
with the state of the economy, and I link this to variation in idiosyncratic jump
risk. I develop a structural credit risk model that accounts for both business cycle
and jump risk, and show by estimation that the model captures the counter-cyclical level and pro-cyclical slope of empirical credit spread curves. In addition, I provide a new procedure for estimation of idiosyncratic jump risk, which is consistent with observed shocks to firm fundamentals.
Originalsprog | Engelsk |
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Publikationsdato | 2012 |
Antal sider | 60 |
Status | Udgivet - 2012 |
Begivenhed | The 39th European Finance Association Annual Meeting (EFA 2012) - Copenhagen Business School, Frederiksberg, Danmark Varighed: 15 aug. 2012 → 18 aug. 2012 Konferencens nummer: 39 http://www.efa2012.org/ |
Konference
Konference | The 39th European Finance Association Annual Meeting (EFA 2012) |
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Nummer | 39 |
Lokation | Copenhagen Business School |
Land/Område | Danmark |
By | Frederiksberg |
Periode | 15/08/2012 → 18/08/2012 |
Internetadresse |