Search results
the credit risk premium to macroeconomic state variables and fundamental characteristics such as aggregate default rates. Intuitively, we find that the credit risk premium is larger (i) during periods of economic growth, and (ii) during periods of lower than expected aggregate default rates.
the credit risk premium is different from other known market risk premia. To the best of our knowledge, this article is the only one that answers two important questions: (i) does a credit risk premium exist, and (ii) is it additive to the more well-known equity risk premium and term pre-mium, in a consistent framework using a long history of data.
credit risk could very well be a level of production, employment and income significantly below what otherwise would be achieved. In short, credit risk is a bilateral problem. Credit can be too safe as well as too risky, and the consequences of the one condition can be as serious as the consequences of the other.3
9 maj 2016 · This research contributes to the discussion of risk premia in credit markets. We quantify empirically the relationship between default probabilities under the risk-neutral measure (Q) and the actual measure (P) for European corporates, over a sample period spanning 2004–2014.
2 In this paper, we understand sovereign credit premium as one of fundamental components of yields. Referring to credit premium, we refer to risk-neutral credit premium. 3 For a comprehensive overview of liquidity proxies used for sovereign bonds, see e.g. Fleming (2003) or Elton and Green (1998).
1. Introduction. We estimate the level and time variation of corporate credit risk premia, which are the prices for bearing corporate default risk, in excess of expected default losses. For each firm, we use credit default swap (CDS) rates to measure the total price for bearing default risk.
We embed a structural model of credit risk inside a dynamic continuous-time consumption- based asset pricing model, which allows us to price equity and corporate debt in a unified framework.
