We introduce a new, market-based and forward looking measure of political risk derived from the yield spread between a country's U.S. dollar debt and an equivalent U.S. Treasury bond. We explain the variation in these sovereign spreads with four factors: global economic conditions,...

This study provides a dynamic analysis of the lead-lag relationship between sovereign Credit Default Swap (CDS) and bond spreads of the highly indebted southern European countries, considering an extensive time sample from the period before the global financial crisis to the latest developments...

Lack of shareholders' commitment about debt and investment policies increases the cost of debt by a quantity that we refer to as the agency (credit) spread. The agency spread increases with the number of periods for which debt holders are exposed to policies that decrease the value of debt: from...

Previous empirical work suggests that, when using corporate bond indices, the yield spread sensitivity of corporate bonds to changes in the yield curve is negative and significant, especially for the A and BBB-rated bond categories. We use a sample of 5500 US corporate bonds to construct bond...

The empirical tests of traditional structural models of credit risk tend to indicate that such models have been unsuccessful in the modeling of credit spreads. To address these negative findings some authors introduce single-factor stochastic volatility specifications and/or jumps.In the yield...

The yield to maturity (YTM) or internal rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments. Almost all finance textbooks state the following conditioning assumptions:(i) that the coupon payments can be reinvested at a rate equal to...

In this article we illustrate how to price bonds and calculate the accrued interest, clean- and dirty price, from which we can compute a bond invoice i.e., the present value for a given cash investment in the bond. We present the classical bond pricing formulae and show how to modify this...

In this paper the author proves that the Expected Net Future Value (ENFV) criterion can lead a risk neutral social planner to reject projects that increase expected utility. By contrast, the Expected Net Present Value (ENPV) rule correctly identifies the economic value of the project. While the...

In this paper the author proves that the Expected Net Future Value (ENFV) criterion can lead a risk neutral social planner to reject projects that increase expected utility. By contrast, the Expected Net Present Value (ENPV) rule correctly identifies the economic value of the project. While the...

We introduce heterogeneity in the pricing of aggregate risks of various persistence into a dynamic corporate finance model with financing frictions. We show that if long-term (persistent) shocks have a higher market price than short-term (temporary) shocks, firms shorten the horizon of corporate...