Observable covariates are useful for predicting default under the natural measure, but several findings question their value for explaining credit spreads under the pricing measure. We introduce a discrete time no-arbitrage model with observable covariates, which allows for a closed form...

Characterizing the dependence between companies' defaults is a central problem in the credit risk literature, and the dependence structure is a first order determinant of the value of credit portfolios and structured credit products such as collateralized debt obligations (CDO), as well as the...

Using a new dataset of bid and offer quotes for credit default swaps, we investigate the relationship between theoretical determinants of default risk and actual market premia using linear regression. These theoretical determinants are firm leverage, volatility and the riskless interest rate. We...