Spread Term Structure and Default Correlation

Les Cahiers du CREF of HEC Montréal Working Paper No. 03-02

62 Pages Posted: 18 Jul 2005

See all articles by Patrick Gagliardini

Patrick Gagliardini

USI Università della Svizzera italiana; Swiss Finance Institute

Christian Gourieroux

University of Toronto - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO); Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE); National Bureau of Economic Research (NBER)

Date Written: May 2003

Abstract

The aim of this paper is to extend the results of Jarrow, Yu (2001) on the spread term structures of corporate bonds. We first consider different characterisations of these term structures, when the available information corresponds to the default histories of the firms. The approach is then extended to factor models, both in a static and in a dynamic framework. We discuss in details the links between default correlation and jumps in short term spreads, and how these phenomenons depend on the available information.

Keywords: Corporate bonds, credit risk, default correlation, jumps in intensities, Copula, credit derivatives

JEL Classification: G11, G33, C12, C51, C81

Suggested Citation

Gagliardini, Patrick and Gourieroux, Christian, Spread Term Structure and Default Correlation (May 2003). Les Cahiers du CREF of HEC Montréal Working Paper No. 03-02. Available at SSRN: https://ssrn.com/abstract=757350 or http://dx.doi.org/10.2139/ssrn.757350

Patrick Gagliardini (Contact Author)

USI Università della Svizzera italiana ( email )

Via Buffi 13
Lugano, TN 6900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Christian Gourieroux

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4349 (Phone)
416-978-6713 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

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Montreal, Quebec H3C 3J7
Canada

Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE) ( email )

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92245 Malakoff Cedex
France
33.4117.7666 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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