IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v32y2005i5-6p1141-1169.html
   My bibliography  Save this article

FRS17 and the Sterling Double A Corporate Yield Curve

Author

Listed:
  • Frank S. Skinner
  • Michalis Ioannides

Abstract

We argue that the appropriate discount rate used to report defined benefit pension plan liabilities in the financial statements is a yield derived from an estimate of a double A corporate yield curve. We show that parsimonious yield curve techniques are easily applicable to the sterling double A corporate bond market. Moreover, we find that with a careful selection of the data an objective and reliable yield curve can be obtained. In all we find that using a yield from a sterling double A corporate yield curve to obtain the value of defined benefit pension plan liabilities is a feasible alternative to the current recommendations of FRS17.

Suggested Citation

  • Frank S. Skinner & Michalis Ioannides, 2005. "FRS17 and the Sterling Double A Corporate Yield Curve," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5‐6), pages 1141-1169, June.
    • Handle: RePEc:bla:jbfnac:v:32:y:2005:i:5-6:p:1141-1169
    DOI: 10.1111/j.0306-686X.2005.00625.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0306-686X.2005.00625.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.0306-686X.2005.00625.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-367, May.
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    3. Vasicek, Oldrich A & Fong, H Gifford, 1982. "Term Structure Modeling Using Exponential Splines," Journal of Finance, American Finance Association, vol. 37(2), pages 339-348, May.
    4. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
    5. Edwin J. Elton & Martin J. Gruber & Deepak Agrawal & Christopher Mann, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, February.
    6. Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-592.
    7. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
    8. W. Braddock Hickman, 1958. "Introduction and Summary of Findings to "Corporate Bond Quality and Investor Experience"," NBER Chapters, in: Corporate Bond Quality and Investor Experience, pages 3-27, National Bureau of Economic Research, Inc.
    9. Robert A. Jarrow & David Lando & Stuart M. Turnbull, 2008. "A Markov Model for the Term Structure of Credit Risk Spreads," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 18, pages 411-453, World Scientific Publishing Co. Pte. Ltd..
    10. Antionio Diaz & Frank Skinner, 2001. "Estimating Corporate Yield Curves," ICMA Centre Discussion Papers in Finance icma-dp2001-01, Henley Business School, University of Reading.
    11. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
    12. W. Braddock Hickman, 1958. "Index to "Corporate Bond Quality and Investor Experience"," NBER Chapters, in: Corporate Bond Quality and Investor Experience, pages 531-536, National Bureau of Economic Research, Inc.
    13. Ioannides, Michalis, 2003. "A comparison of yield curve estimation techniques using UK data," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 1-26, January.
    14. Green, Richard C & Odegaard, Bernt A, 1997. "Are There Tax Effects in the Relative Pricing of U.S. Government Bonds?," Journal of Finance, American Finance Association, vol. 52(2), pages 609-633, June.
    15. Longstaff, Francis A & Schwartz, Eduardo S, 1995. "A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
    16. W. Braddock Hickman, 1958. "Corporate Bond Quality and Investor Experience," NBER Books, National Bureau of Economic Research, Inc, number hick58-1, March.
    17. Ho, Thomas S Y & Lee, Sang-bin, 1986. "Term Structure Movements and Pricing Interest Rate Contingent Claims," Journal of Finance, American Finance Association, vol. 41(5), pages 1011-1029, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Magdalena Chmielowiec-Lewczuk & Marzanna Lament & Kinga Bauer & Ewa Spigarska, 2023. "The Comparability of Financial Information in Insurance Companies Using NiCE Qualitative Characteristics Measurement," Sustainability, MDPI, vol. 15(20), pages 1-17, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frank S. Skinner & Michalis Ioannides, 2005. ""FRS17" and the Sterling Double A Corporate Yield Curve," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5-6), pages 1141-1169.
    2. Frank Skinner & Michalis Ioannides, 2004. "FRS17 and the Sterling Doubles A Corporate Yield Curve," ICMA Centre Discussion Papers in Finance icma-dp2004-08, Henley Business School, University of Reading.
    3. Houweling, Patrick & Hoek, Jaap & Kleibergen, Frank, 2001. "The joint estimation of term structures and credit spreads," Journal of Empirical Finance, Elsevier, vol. 8(3), pages 297-323, July.
    4. Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya, 2011. "Corporate bond default risk: A 150-year perspective," Journal of Financial Economics, Elsevier, vol. 102(2), pages 233-250.
    5. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    6. Clark, Ephraim & Lakshmi, Geeta, 2004. "Sovereign debt and the cost of migration: India 1990-1992," Journal of Asian Economics, Elsevier, vol. 15(1), pages 111-134, February.
    7. van Landschoot, A., 2003. "The Term Structure of Credit Spreads on Euro Corporate Bonds," Discussion Paper 2003-046, Tilburg University, Center for Economic Research.
    8. Leonard Tchuindjo, 2007. "Pricing of Multi-Defaultable Bonds with a Two-Correlated-Factor Hull-White Model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 14(1), pages 19-39.
    9. Yan, Alice Xie & Shi, Jian & Wu, Chunchi, 2008. "Do macroeconomic variables matter for pricing default risk?," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 279-291.
    10. Ramaprasad Bhar, 2010. "Stochastic Filtering with Applications in Finance," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7736, December.
    11. Vink, Dennis, 2007. "An Empirical Analysis of Asset-Backed Securitization," MPRA Paper 10382, University Library of Munich, Germany, revised 25 Aug 2008.
    12. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    13. Jobst, Norbert J. & Zenios, Stavros A., 2005. "On the simulation of portfolios of interest rate and credit risk sensitive securities," European Journal of Operational Research, Elsevier, vol. 161(2), pages 298-324, March.
    14. Samuel Chege Maina, 2011. "Credit Risk Modelling in Markovian HJM Term Structure Class of Models with Stochastic Volatility," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2011.
    15. Duffie, Darrell, 2003. "Intertemporal asset pricing theory," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 11, pages 639-742, Elsevier.
    16. Dai, Qiang & Singleton, Kenneth J., 2003. "Fixed-income pricing," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 20, pages 1207-1246, Elsevier.
    17. Landschoot, Astrid Van, 2008. "Determinants of yield spread dynamics: Euro versus US dollar corporate bonds," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2597-2605, December.
    18. Roberto Blanco & Simon Brennan & Ian W Marsh, 2004. "An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps," Bank of England working papers 211, Bank of England.
    19. van Landschoot, A., 2003. "The Term Structure of Credit Spreads on Euro Corporate Bonds," Other publications TiSEM f5164bb2-6597-48c4-8b44-d, Tilburg University, School of Economics and Management.
    20. Astrid Van Landschoot, 2004. "Determinants of Euro Term Structure of Credit Spreads," Working Paper Research 57, National Bank of Belgium.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:32:y:2005:i:5-6:p:1141-1169. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.