Risikopræmien på tværs af finansielle og industrielle virksomhedsobligationer: Et studie af finansielle og industrielle virksomhedsobligationer med anvendelse af en udvidet Merton-model

Abstract

The investment industry constitutes an essential driving force in the modern globalized economy, where understanding and balancing expected returns and systematic risk is crucial in generating profits. Corporate bonds are vital predictors of economic activity, and therefore, this paper examines the credit spread between corporate bonds issued by financial and industrial firms. For this, an extension of Merton (1974) is derived, measuring a company’s structural credit risk by modeling its equity as a European call option on its assets. The value of the company’s assets follows the Brownian motion and is priced in accordance with the Black-Scholes-Merton model. Default occurs at maturity if the value of the company’s assets is below its debt obligations. Specifically for this extended Merton model, it employs variable volatility and recovery rates, and by incorporating bond-specific characteristics, comparison between financial and industrial bonds is possible. Financial firms are defined as banks, whose assets consist of loans to industrial firms. The study assumes that financial corporate bonds have higher yield spreads than comparable industrial bonds, and through empirical analysis of American bond data from 1976 to 2021, this correlation is examined. By the results of the analysis, the assumption is confirmed, showing a higher yield spread and risk premium on financial bonds compared to industrial bonds with the same rating and maturity. Furthermore, comparisons across rating groups reveal a clear relationship between bond returns and systematic risk, particularly pronounced for high-yield bonds. Finally, the study investigates the risk premium and excess beta among industrial sectors, showing distinct differences in the level of systematic risk and market sensitivity.