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Can structural models of default explain the credit spread puzzle?

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Abstract

This Economic Letter discusses why standard versions of structural models of default tend to underpredict the level of risk premiums and variations in those premiums over time. Drawing on recent research, the Letter suggests modifications to these standard models in order to better explain historical levels and time variations of corporate bond spreads.

Suggested Citation

  • Robert S. Goldstein, 2010. "Can structural models of default explain the credit spread puzzle?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue feb22.
    • Handle: RePEc:fip:fedfel:y:2010:i:feb22:n:2010-06
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    File URL: http://www.frbsf.org/publications/economics/letter/2010/el2010-06.html
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    File URL: http://www.frbsf.org/publications/economics/letter/2010/el2010-06.pdf
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    Cited by:

    1. Samir Kadiric & Arthur Korus, 2019. "The effects of Brexit on credit spreads: Evidence from UK and Eurozone corporate bond markets," International Economics and Economic Policy, Springer, vol. 16(1), pages 65-102, March.
    2. Samir Kadiric & Arthur Korus, 2018. "Effects of Brexit on Corporate Yield Spreads: Evidence from UK and Eurozone Corporate Bond Markets," EIIW Discussion paper disbei251, Universitätsbibliothek Wuppertal, University Library.

    More about this item

    Keywords

    Credit; Corporate bonds;

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