Bond Prices, Default Probabilities and Risk Premiums

11 Pages Posted: 11 Nov 2012

See all articles by John C. Hull

John C. Hull

University of Toronto - Rotman School of Management

Mirela Predescu

BNP Paribas, London

Alan White

University of Toronto - Rotman School of Management

Date Written: March 9, 2005

Abstract

A feature of credit markets is the large difference between probabilities of default calculated from historical data and probabilities of default implied from bond prices (or from credit default swaps). This paper illustrates and discusses the reasons for the difference between historical and risk neutral probabilities.

Keywords: risk-neutral default probabilities, historical default probabilities, credit default swaps

Suggested Citation

Hull, John C. and Predescu, Mirela and White, Alan, Bond Prices, Default Probabilities and Risk Premiums (March 9, 2005). Available at SSRN: https://ssrn.com/abstract=2173148 or http://dx.doi.org/10.2139/ssrn.2173148

John C. Hull

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
(416) 978-8615 (Phone)
416-971-3048 (Fax)

Mirela Predescu (Contact Author)

BNP Paribas, London ( email )

10 Harewood Avenue
London, NW1 6AA
United Kingdom

Alan White

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-3689 (Phone)
416-971-3048 (Fax)

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