Maturity, Indebtedness, and Default Risk

“Yield spread and term to maturity: default vs. liquidity”

The aim of this paper is the analysis of the yield spreads between Treasury and non-Treasury Spanish fixed income assets and its relationship with the term to maturity. We find a downward sloping term structure of yield spreads for investmentgrade bonds that seems to be contrary to the “crisis at maturity” theory. However, we claim that this outcome is caused mainly by the effect of liquidity o...

Constant Maturity Credit Default Swap Pricing with Market Models

In this work we derive an approximated no-arbitrage market valuation formula for Constant Maturity Credit Default Swaps (CMCDS). We move from the CDS options market model in Brigo (2004), and derive a formula for CMCDS that is the analogous of the formula for constant maturity swaps in the default free swap market under the LIBOR market model. A “convexity adjustment”-like correction is present...

Pricing Constant Maturity Credit Default Swaps Under Jump Dynamics

In this paper we discuss the pricing of Constant Maturity Credit Default Swaps (CMCDS) under single sided jump models. The CMCDS offers default protection in exchange for a floating premium which is periodically reset and indexed to the market spread on a CDS with constant maturity tenor written on the same reference name. By setting up a firm value model based on single sided Lévy models we ca...

Stock Liquidity and Default Risk*

Default Risk and Hazard Process