Beschreibung
This article presents joint econometric analysis of interest rate risk, issuer-specific risk (credit risk) and bond-specific risk (liquidity risk) in a reduced-form framework. Although our model includescorrelation between interest rate risk and issuer-specific risk, it allows sequential estimation of the
risk-free term structure parameters and the issuer-specific as well as bond-specific components. Within
the Bayesian framework we develop a methodology to estimate the model parameters and to separate
the different components of risk. Via Markov Chain Monte Carlo methods and data augmentation we infer a risk-free term structure process from swap market data and, based on these estimates, estimate issuer-specific and bond-specific risk from corporate bond data in the German market. We find that bond-specific risk plays a crucial role in the pricing of corporate bonds. As regards issuer-specific risk, we find a strong impact of time, the (level and slope of the) risk-free term structure, the KMV distance to default and the lagged component and only a weak impact of the stock market variables (stock market index changes, returns of this particular stock, stock market volatility) on the issuer-specific component while there is no impact of the debt to value ratio. As regards bond-specific risk, we observe
a strong impact of level and slope of the risk-free term structure and the lagged terms as well as a weak impact of the stock market variables and the distance to default on the bond-specific component without any impact of time or debt to value ratio. Among the bonds analyzed we observe large
differences between the relative influence of issuer-specific vs. bond-specific spread and its volatility.
| Zeitraum | 31 Mai 2007 → 2 Juni 2007 |
|---|---|
| Ereignistitel | Annual Conference of the German Academic Association of Business Research |
| Veranstaltungstyp | Keine Angaben |
| Bekanntheitsgrad | International |