In the current literature, the focus of credit risk analysis has been either on the valuation of risky corporate bond and credit spread, or on the valuation of vulnerable options, but never both in the same context. There are two main concerns with existing studies. First, corporate bonds and credit spreads are generally analyzed in a context where corporate debt is the only liability of the ̄r...

This paper explores trading strategies to identify possible imbalances that may have been existed in the credit markets, during the period 2001–2006, when pairing CDS and CMCDS on the same name. To this end, a large database of single-name CDS premia is used to produce the corresponding CMCDS prices, derived by implementing common market models. It appears that, in general, it would have been m...

The interaction of bondholder's conversion and issuer's call in a convertible bond leads to a game option model between the two counterparties. Like typical pricing models for corporate debts, the fair value of a convertible bond is highly dependent on issuer's credit risk, tax benefits of coupons and other structural features. The convertible bond pricing models in the literature can be catego...

This paper investigates the significance of volatility, skewness, kurtosis, and downside risk in predicting the cross-sectional variation in future returns on corporate bonds. The results indicate a significantly positive (negative) link between volatility (skewness) and expected returns, whereas kurtosis does not have a robust incremental contribution to the predictability of bond returns. Bon...

Article history: Received 8 July 2014 Accepted 12 March 2015 Available online 21 March 2015 We study the impact of the recent global financial crisis on the determinants of corporate bond spreads, in particular, focusing on the impact of liquidity and credit risk on yield spreads using data regarding financial and non-financial bond issuers listed on the Korea Exchange (KRX). Our main findings ...

FALL 2003 This is an examination of the determinants of corporate bond credit spreads using both weekly and monthly option-adjusted spreads for nine Merrill Lynch corporate bond indexes from January 1997 through July 2002. The Russell 2000 index historical return volatility and the Conference Board composite leading and coincident economic indicators have significant power in explaining credit ...

This paper studies the problem of default correlation. We first introduce a random variable called “timeuntil-default” to denote the survival time of each defaultable entity or financial instrument, and define the default correlation between two credit risks as the correlation coefficient between their survival times. Then we argue why a copula function approach should be used to specify the jo...

Debt with many creditors is analyzed in a continuous-time pricing model of the levered rm. We speci cally allow for debtor opportunism vis-a-vis a non-coordinated group of creditors, in form of repeated strategic renegotiation o ers and default threats. We show that the creditors' initial entitlement to non-collateralized assets will be expropriated through exchange o ers. Exchange o ers succes...