Abstract

http://ssrn.com/abstract=887380
 
 

References (48)



 
 

Citations (4)



 


 



Default Risk, Default Risk Premiums, and Corporate Yield Spreads


Georges Dionne


HEC Montreal - Department of Finance

Genevieve Gauthier


HEC Montreal

Khemais Hammami


HEC Montreal - Department of Finance

Mathieu Maurice


HEC Montréal

Jean-Guy Simonato


HEC Montréal

June 1, 2006

EFA 2006 Zurich Meetings

Abstract:     
An important research area of the corporate yield spread literature seeks to measure the proportion of the spread explained by various factors such as the possibility of default, liquidity or tax differentials. We contribute to this literature by assessing the ability of observed macroeconomic factors and the possibility of changes in regimes to explain the default risk proportion in yield spreads. For this purpose, we extend the Markov Switching risk-free term structure model of Bansal and Zhou (2002) to the corporate bond setting and develop recursive formulas for default probabilities, risk-free and risky zero-coupon bond prices. The model is calibrated with consumption, inflation, risk-free yield and default data over the 1987-1996 period. Preliminary results show that up to 64% of the ten years corporate yield spread for industrial Baa is explained by the possibility of default.

Number of Pages in PDF File: 39

Keywords: Corporate yield spread, default risk, default risk premium, credit spread level puzzle, macroeconomic risk premium

JEL Classification: G11, G12, G13, G21, G23

working papers series


Download This Paper

Date posted: March 1, 2006  

Suggested Citation

Dionne, Georges and Gauthier, Genevieve and Hammami, Khemais and Maurice, Mathieu and Simonato, Jean-Guy, Default Risk, Default Risk Premiums, and Corporate Yield Spreads (June 1, 2006). EFA 2006 Zurich Meetings. Available at SSRN: http://ssrn.com/abstract=887380 or http://dx.doi.org/10.2139/ssrn.887380

Contact Information

Georges Dionne (Contact Author)
HEC Montreal - Department of Finance ( email )
3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)
HOME PAGE: http://www.hec.ca/gestiondesrisques/
Genevieve Gauthier
HEC Montreal ( email )
3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
Khemais Hammami
HEC Montreal - Department of Finance ( email )
3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
Mathieu Maurice
HEC Montréal ( email )
3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
Jean-Guy Simonato
HEC Montréal ( email )
3000, chemin de la Cote-Sainte-Catherine
Service de l'enseignement de la finance
Montreal, Quebec H3T 2A7
Canada
514-340-6807 (Phone)
514-340-5632 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 1,441
Downloads: 348
Download Rank: 47,195
References:  48
Citations:  4

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.250 seconds