Pricing corporate bonds and constructing credit curves in a developing country: The case of the Taiwan bond fund crisis

Shyan Yuan Lee, Wan-Jiun Paul Chiou and Yi-Fang Chung

International Review of Economics & Finance, 2017, vol. 50, issue C, 261-274

Abstract: Supervising the bond market in developing countries is challenging due to the lack of vehicles and structures that exist in rich economies. The investors may not cognize the risks in fixed-incomes and their impacts, particularly the default risk. Our study first documents the background and causes of the bond fund crisis in Taiwan in 2004 and further evaluates the effectiveness of the regulator's policies that responded the crisis. Using the data during 2006:01–2013:12, the findings that the quoted term structure of yield to maturities provides accurate corporate bond pricing confirm the feasibility of the new regulations. However, some observations show that volatile forward rates cause negative spreads and implausible survival probability curves. We discuss the findings and provide suggestions for further research.

Keywords: Emerging bond market; Credit curve; Spot rate curve; Forward rate curve; Survival probability curve (search for similar items in EconPapers)
JEL-codes: G18 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:50:y:2017:i:c:p:261-274

DOI: 10.1016/j.iref.2017.04.004

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