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Default dependence among corporate bond issuers: empirical evidence from time series data

Listed author(s):
  • Natalia Puzanova
  • Sikandar Siddiqui

This study shows that the extent to which the asset returns of different obligors are correlated is of vital importance for a realistic assessment credit portfolio risk. The high empirical relevance of this phenomenon is demonstrated by applying a likelihood-based estimation procedure to time series data on historical default frequencies. It turns out that, apparently, the default probabilities of speculative-grade debtors are much more highly correlated than the ones of investment-grade borrowers.

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Article provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.

Volume (Year): 1 (2005)
Issue (Month): 5 (September)
Pages: 297-302

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Handle: RePEc:taf:apfelt:v:1:y:2005:i:5:p:297-302
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  1. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
  2. Gordy, Michael B., 2000. "A comparative anatomy of credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 119-149, January.
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