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Corporate bond liquidity and matrix pricing

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  • Kagraoka, Yusho

Abstract

Matrix priced bond price data are investigated to model the liquidity of a corporate bond. Preliminary study shows that the yield spread is wide when a yield history records jumps. As well as respecting the way how matrix prices are generated, this finding leads us to a conjecture that time series of yield is represented by a jump-diffusion process. Then the kurtosis of a yield distribution can be regarded as a proxy variable for the liquidity. The conjecture is empirically validiated by regression analysis of yield spreads.

Suggested Citation

  • Kagraoka, Yusho, 2005. "Corporate bond liquidity and matrix pricing," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 355(1), pages 158-164.
    • Handle: RePEc:eee:phsmap:v:355:y:2005:i:1:p:158-164
    DOI: 10.1016/j.physa.2005.02.080
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    References listed on IDEAS

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    1. Houweling, Patrick & Mentink, Albert & Vorst, Ton, 2005. "Comparing possible proxies of corporate bond liquidity," Journal of Banking & Finance, Elsevier, vol. 29(6), pages 1331-1358, June.
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