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Default Probabilities According to the Bond Market


  • Byström , Hans

    () (Department of Economics, Lund University)

  • Kwon, Oh Kang

    () (Discipline of Finance,University of Sydney.)


In this paper we describe a simple way of analytically computing entire ìterm structures of default probabilities using information embedded in the corporate bond market data. This market-based approach of estimating the creditworthiness of firms gives probabilities of default at various maturities, and has the advantage over traditional credit ratings in that it is dynamic and forward looking.

Suggested Citation

  • Byström , Hans & Kwon, Oh Kang, 2005. "Default Probabilities According to the Bond Market," Working Papers 2005:7, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2005_007

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    References listed on IDEAS

    1. Lars Jonung & Fredrik Sjöholm, 1999. "Should Finland and Sweden Form a Monetary Union?," The World Economy, Wiley Blackwell, vol. 22(5), pages 683-700, July.
    2. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
    3. George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
    4. Lafrance, Robert & St-Amant, Pierre, 1999. "Optimal Currency Areas: A Review of the Recent Literature," Staff Working Papers 99-16, Bank of Canada.
    5. Ajit Bhalla & Shujie Yao & Zongyi Zhang, 2003. "Regional economic performance in China," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(1), pages 25-39, March.
    6. Hal Hill, 2002. "Spatial Disparities in Developing East Asia: a survey," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 16(1), pages 10-35, May.
    7. Johnson, D. Gale, 2003. "Provincial migration in China in the 1990s," China Economic Review, Elsevier, vol. 14(1), pages 22-31.
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    More about this item


    bond market; default probability term structure;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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