Cookies?
Library Header Image
LSE Research Online LSE Library Services

An empirical investigation into credit spread indices

Prigent, Jean-Luc, Renault, Olivier and Scaillet, Olivier (2001) An empirical investigation into credit spread indices. Journal of Risk, 3 (3). pp. 27-56. ISSN 1465-1211

Full text not available from this repository.

Abstract

The authors study the dynamics of the spread between US corporate and Treasury bonds. They focus on Aaa and Baa corporate yield indices and estimate the dynamics of the spreads nonparametrically assuming that they follow a univariate diffusion process. Using techniques developed for interest rate processes, they attempt to infer from the data what acceptable process can be used to model aggregate credit spreads for option pricing or risk management purposes. It is found that there is significant evidence of mean reversion, especially for higher-rated spreads, and that the volatility of Aaa spreads exhibit a U-shape while the volatility of Baa spreads is monotonically increasing in the level of spreads. Based on these observations and on the evidence of jumps in the series, a new model is proposed for credit spread indices (an Ornstein-Uhlenbeck process with jumps) and estimated using maximum likelihood.

Item Type: Article
Official URL: https://www.risk.net/journal-of-risk
Additional Information: © 2001 Incisive Media
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
Date Deposited: 16 Nov 2008 20:42
Last Modified: 15 Sep 2023 12:37
URI: http://eprints.lse.ac.uk/id/eprint/18729

Actions (login required)

View Item View Item