"An important research question examined in the credit risk literature focuses on the proportion of corporate yield spreads attributed to default risk. This topic is reexamined in light of the different issues associated with the computation of default probabilities obtained from historical...

An important research area of the corporate yield spread literature seeks to measure the proportion of the spread explained by various factors such as the possibility of default, liquidity or tax differentials. We contribute to this literature by assessing the ability of observed macroeconomic...

Monte Carlo simulation is commonly used for computing prices of derivative securities when an analytical solution does not exist. Recently, a new simulation technique known as empirical martingale simulation (EMS) has been proposed by Duan and Simonato (1998) as a way of improving simulation...

Linearized versions of the Nelson–Siegel (1987) and Svensson (1994) models for the cross-sectional estimation of spot yield curves from samples of coupon bonds are developed and analyzed. It is shown how these models can be made linear in the level, slope and curvature parameters and how prior...

One critical difficulty in implementing Merton's (1974) credit risk model is that the underlying asset value cannot be directly observed. The model requires the unobserved asset value and the unknown volatility parameter as inputs. The estimation problem is further complicated by the fact that...