Implementing Structural Credit Risk Models Using Both Stock and Bond Prices - an Empirical Study

Posted: 28 Feb 2004

See all articles by Joel Reneby

Joel Reneby

Stockholm School of Economics - Department of Finance

Jan Ericsson

McGill University; Swedish Institute for Financial Research (SIFR)

Abstract

Reduced form credit risk models are often thought to be better suited for pricing corporate bonds than structural models. In this paper we challenge this view; by conditioning not only on equity but also on bond and dividend information, our structural model performs well in comparison to previously tested reduced form models. Moreover, we consider pricing of bond portfolios and show that model errors are to a large extent diversifiable.

Keywords: Credit risk, yield spreads, structural models

JEL Classification: G12, G13, G33

Suggested Citation

Reneby, Joel and Ericsson, Jan, Implementing Structural Credit Risk Models Using Both Stock and Bond Prices - an Empirical Study. Available at SSRN: https://ssrn.com/abstract=504143

Joel Reneby

Stockholm School of Economics - Department of Finance ( email )

SE-113 83 Stockholm
Sweden
+46 8 7369143 (Phone)
+46 8 312327 (Fax)

Jan Ericsson (Contact Author)

McGill University ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
(514) 398-3186 (Phone)
(514) 398-3876 (Fax)

HOME PAGE: http://people.mcgill.ca/jan.ericsson/

Swedish Institute for Financial Research (SIFR)

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SE-113 59 Stockholm, SE-113 60
Sweden

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