We examine the question of the determinants of corporate bond credit spreads using both weekly and monthly option-adjusted spreads for nine corporate bond indexes from Merrill Lynch from January 1997 to July 2002. We find that the Russell 2000 index historical return volatility and the...

We examine the question of the determinants of corporate bond credit spreads using both weekly and monthly option-adjusted spreads for nine corporate bond indexes from Merrill Lynch from January 1997 to July 2002. We find that the Russell 2000 index historical return volatility and the...

This paper revisits the question of the determinants of corporate bond credit spreads using some new explanatory variables with both weekly and monthly option-adjusted credit spreads of corporate bond indices from Merrill Lynch. We find that among the new variables, the interest rate historical...

In this paper, we propose a general method for pricing and hedging non-standard American options. The proposed method applies to any kind of American-style contract for which the payoff function has a Markovian representation in the state space. Specifically, we obtain an analytic solution for...

In this paper, we examine the dynamic behavior of credit spreads on corporate bond portfolios. We propose an economeic model of credit spreads that incorporates portfolio rebalancing, the near unit root property of spreads, the autocorrelation in spread changes, the ARCH conditional...

We present a cash-flow based model of corporate debt valuation that incorporates two novel features. First, we allow for the separation and optimal determination of the firm's debt-service and dividend policies; in particular, the firm is allowed to maintain cash reserves to meet future debt...

In this paper, we propose an alternative approach for pricing and hedging non-standard American options. In principle, the proposed approach applies to any kind of American-style contract for which the payoff function has a Markovian representation in the state space. Specifically, we obtain an...

In this paper, we propose an alternative approach for pricing and hedging Americanbarrier options. Specifically, we obtain an analytic representation for the value and hedge parameters of barrier options, using the decomposition technique of separating the European option value from the early...

Recent work has suggested that strategic underperformance of debt-service obligations by equity holders can resolve the gap between observed yield spreads and those generated by Merton (1974)-style models. We show that this is not quite correct. The value of the option to underperform on...

In this paper, we examine the dynamic behavior of credit spreads on corporate bond portfolios. We propose an econometric model of credit spreads that incorporates portfolio rebalancing, the near unit root property of spreads, the autocorrelation in spread changes, the ARCH conditional...