The traditional method of credit spread estimation is based on subtracting independently estimated risk-free and risky term structures of interest rates which in many cases yields unrealistically shaped and often irregular credit spread curves. A parsimonious joint estimation of the risk-free...

In this paper we develop a model of the economic value of a credit rating system. Increasing international competition and changes in the regulatory framework driven by the Basel Committee on Banking Supervision (Basel II) called forth incentives for banks to improve their credit rating systems....

Under standard assumptions the deterministic reduced-form credit risk model is not capable of accurately pricing the two fundamental credit risk instruments - bonds and credit default swaps (CDS) - simultaneously. Using a data set of euro-denominated corporate bonds and CDS our paper quantifies...

In this study, we empirically analyze the determinants of heterogeneity in rating assessments across different segments of the European loan market. We conduct a benchmarking analysis using rating information on European corporate obligors from nine major Austrian banks that have a large share...

Recent work has suggested that strategic underperformance of debt-service obligations by equity holders can resolve the gap between observed yield spreads and those generated by Merton (1974)-style models.(...)

In this paper, we investigate the pricing of Japanese yen interest rate swaps during the period 1990-96. We obtain measures of the spreads of the swap rates over comparable Japanese Government Bonds (JGBs) for different maturities and analyze the relationship between the swap spreads and credit...

We build a multi-factor, no-arbitrage model of the term structure of spot interest rates. The stochastic factors are the short-term interest rate and the premia of the futures rates over the short-term interest rates.(...)