Spread Term Structure and Default Correlation
Les Cahiers du CREF of HEC Montréal Working Paper No. 03-02
62 Pages Posted: 18 Jul 2005
Date Written: May 2003
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: Suggested Citation