Interest risk and default risk: A conditional volatility study

Francisco Sotos

International Advances in Economic Research, 2003, vol. 9, issue 1, 56-63

Abstract: The aim of this work is to measure the risk-price sensitivity to interest rate changes in the Spanish market and to see if sensitivity is lower with public debt. To contrast this hypothesis, this study presents a model that analyzes the sensitivity of the risky prices before variations in interest rates through duration and convexity, with the purpose of explaining the price of risky bonds. The main advantages of the analysis are the possibility to determine the sensibility of the risky prices before variations of risk-free interest rates in the Spanish market and the construction of a conditional volatility model that overcomes the linearity models of constant variance. Copyright International Atlantic Economic Society 2003

Date: 2003
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DOI: 10.1007/BF02295301

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