This paper develops a corporate bond pricing model following the structural approach in which the dynamics of the instantaneous risk-free interest rate are governed by a double square-root (DSR) process. Credit spreads generated from this pricing model depend explicitly upon the levels of...

The author has created a model that describes the relationship between the current bank interest rate (rate on loans extended to business entities) and future corporate bond yield (in the text this is formula # 17): Cbank = (k Cbond)/(1-r). Where: CBank is interest rate on bank loans; CBond is...

We examine the relative impact of Moody's and S&P ratings on bond yields and find that at issuance, yields on split rated bonds with superior Moody's ratings are about 8 basis points lower than yields on split rated bonds with superior S&P ratings. This suggests that investors differentiate...

This paper examines whether unobservable differences in firm volatility are responsible for the global loan pricing puzzle, which is the observation that corporate loan interest rates appear to be lower in Europe than in the United States. We analyze whether equity volatility, an error prone...

By using an existing and a new convergence measure, this paper assesses whether bank loan and bond interest rates are converging for the non-financial corporate sector across the euro area. Whilst we find evidence for complete bond market integration, the market for bank loans remains segmented,...

This paper studies state-contingent debt as an alternative refinancing instrument for advanced economies. In times of high sovereign indebtedness, increasing yields impose eminent debt roll-over risks. We analyze the welfare implications of two state-contingent debt instruments: puttable and...

This paper studies the hedging effectiveness of interest rate swaps using different reference rates for eliminating interest rate risk from floating rate loans. Two different reference rates are studied. The first is a reference rate whose maturity, ∆, matches the payment interval of the...

Keeping in view that the roles of portfolio risk and the relationship between different risky lending assets in loan valuation have not been studied empirically, this study examines the relationship between undiversiable portfolio risk and portfolio lending with an attempt to fill the gap...

When the monetary policy rate increases, banks increase loan rates fairly quickly and by roughly the same amount. However, when the policy rate falls, bank loan rates adjust more slowly and not completely. I develop a model with which I show that this asymmetry in interest rate pass-through can...