IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v15y2022i1p25-d721015.html
   My bibliography  Save this article

Credit Risk in G20 Nations: A Comparative Analysis in International Finance Using Option-Adjusted-Spreads

Author

Listed:
  • Natalia Boliari

    (Department of Economics & Finance, O’Malley School of Business, Manhattan College, Riverdale, NY 10471-4098, USA)

  • Kudret Topyan

    (Department of Economics & Finance, O’Malley School of Business, Manhattan College, Riverdale, NY 10471-4098, USA)

Abstract

Corporate bond yields are the manifestation of the cost of financing for private firms, and if properly evaluated, they provide researchers with valuable risk information. Within this context, this work is the first study producing corporate yield spreads for all S&P-rated bonds of G20 nations to explain their comparative riskiness. The option-adjusted spread analysis is an advanced method that enables us to compare the bonds with embedded options and different cash flow characteristics. For securities with embedded options, the volatility in the interest rates plays a role in ascertaining whether the option is going to be invoked or not. Therefore, researchers need a spread that, when added to all the forward rates on the tree, will make the theoretical value equal to the market price. The spread that satisfies this condition is called the option-adjusted spread, since it considers the option embedded into the issue. Ultimately, this work investigates the credit risk differentials of S&P rated outstanding bonds issued by the G20 nations to provide international finance professionals with option-adjusted corporate yield spreads showing the credit risk attributable to debt instruments. Detailed results computed using OAS methodology are presented in tables and used to answer the six vital credit-risk-related questions introduced in the introduction.

Suggested Citation

  • Natalia Boliari & Kudret Topyan, 2022. "Credit Risk in G20 Nations: A Comparative Analysis in International Finance Using Option-Adjusted-Spreads," JRFM, MDPI, vol. 15(1), pages 1-23, January.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:1:p:25-:d:721015
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/15/1/25/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/15/1/25/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Choudhry, Moorad & Lizzio, Michele, 2004. "Advanced Fixed Income Analysis," Elsevier Monographs, Elsevier, edition 1, number 9780750662635.
    Full references (including those not matched with items on IDEAS)

    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. Eduardo A. Cavallo & Patricio Valenzuela, 2010. "The determinants of corporate risk in emerging markets: an option-adjusted spread analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 59-74.
    2. Das, Rituparna, 2009. "Indian G-Sec Market: How the Term Structure Reacts to Monetary Policy," MPRA Paper 16436, University Library of Munich, Germany.
    3. Alessandra Ortolano & Eugenia Nissi, 2022. "The Volatility of the “Green” Option-Adjusted Spread: Evidence before and during the Pandemic Period," Risks, MDPI, vol. 10(3), pages 1-13, February.

    More about this item

    Keywords

    option-adjusted spreads; corporate yield spreads; rating agencies; credit risk; G20 nations;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    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:gam:jjrfmx:v:15:y:2022:i:1:p:25-:d:721015. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.