The joint estimation of term structures and credit spreads
AbstractWe present a new framework for the joint estimation of the default-free government term structure and corporate credit spread curves. By using a high-quality data set of German mark denominated bonds, we show that this yields more realistic spreads than conventionally obtained spread curves that result from subtracting independently estimated government and corporate term structures. The estimated spread curves are now smooth functions of time to maturity, as opposed to the twisting curves one gets from the traditional method, and are less sensitive to model specifications. Moreover, the implied corporate term structures have tighter confidence intervals.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 8 (2001)
Issue (Month): 3 (July)
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Web page: http://www.elsevier.com/locate/jempfin
Other versions of this item:
- Houweling, P. & Hoek, J. & Kleibergen, F.R., 1999. "The Joint Estimation of Term Structures and Credit Spreads," Econometric Institute Report EI 9916-/A, Erasmus University Rotterdam, Econometric Institute.
- Patrick Houweling & Jaap Hoek & Frank Kleibergen, 1999. "The Joint Estimation of Term Structures and Credit Spreads," Tinbergen Institute Discussion Papers 99-027/4, Tinbergen Institute.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
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