The study builds on previous research that decomposes rating category default probability term structures from rating category interest rate term structures, and proposes a method to decompose rating migration matrices from market data, via decomposed default probability term structures. To...

We provide a model able to compute a threshold level for the public debt/GDP ratio, such that a country can be rescued by an official lender (e.g. ESM or IMF). The critical level is defined as the maximum level of debt/GDP, such that it is still possible to put the debt/GDP ratio on a...

The cross-section method for estimating credit spreads as proposed in [NOM01] has a drawback when used in applications different than estimating a CVA VaR. Indeed, we show that by optimizing in least-squares on log-spreads, the method tends to approximate the geometric average of observed...

In this paper, we analyze wether the sensitivity of credit spread changes to financial and macroeconomic variables depends on bond characteristics such as rating and maturity. First, we estimate the term structure of credit spreads for different rating categories by applying an extension of the...

This paper uses the credit-friction model developed by C'urdia and Woodford, in a series of papers, as the basis for attempting to mimic the behavior of credit spreads in moderate as well as in times of crisis. We are able to generate movements in representative credit spreads that are, at...

This paper uses the credit-friction model developed by Curdia and Woodford, in a series of papers, as the basis for attempting to mimic the behavior of credit spreads in moderate as well as in times of crisis. We are able to generate movements in representative credit spreads that are, at times,...

This paper studies the interaction between fundamental and liquidity for defaultable corporate bonds that are traded in an over-the-counter secondary market with search frictions. Bargaining with dealers determines a bond's endogenous liquidity, which depends on both the firm fundamental and the...

This paper presents a framework in which many structural credit risk models can be made hybrid by randomizing the default trigger, while keeping the capital structure intact. This produces random recovery rates negatively correlated with the default probability. The approach is implemented on a...

We embed a structural model of credit risk inside a dynamic continuous-time consumption-based asset pricing model, which allows us to price equity and corporate debt in a unified framework. Our key economic assumptions are that the first and second moments of earnings and consumption growth...

This paper examines the appropriate term of the risk free rate to be used by a regulator in price control situations, most particularly in the presence of corporate debt. If the regulator seeks to ensure that the present value of the future cash flows to equity holders equals their initial...