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Spread Term Structure and Default Correlation

Author

Listed:
  • Patrick Gagliardini
  • Christian Gouriéroux

Abstract

The aim of this paper is to analyse default correlation and its implications for the term structures of corporate bonds and credit derivatives, reconsidering the results of Jarrow, R., and F. Yu [2001] and the related literature. We first provide different characterisations of spread term structures, when the available information corresponds to the default histories of the firms. The approach is then extended to factor models, in both static and a dynamic framework. We discuss in details the links between default correlation and jumps in short term spreads, and how these phenomena depend on the available information.

Suggested Citation

  • Patrick Gagliardini & Christian Gouriéroux, 2016. "Spread Term Structure and Default Correlation," Annals of Economics and Statistics, GENES, issue 123-124, pages 175-223.
  • Handle: RePEc:adr:anecst:y:2016:i:123-124:p:175-223
    DOI: 10.15609/annaeconstat2009.123-124.0175
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    File URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.123-124.0175
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    Keywords

    Corporate Bonds; Credit Risk; Default Correlation; Jumps in Intensities; Copula; Credit Derivatives; Stochastic Intensity;

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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