Empirical Evaluation of Hybrid Defaultable Bond Pricing Models

S. Antes, M. Ilg, B. Schmid and R. Zagst

Applied Mathematical Finance, 2008, vol. 15, issue 3, 219-249

Abstract: A four-factor model (the extended model of Schmid and Zagst) is presented for pricing credit risk related instruments such as defaultable bonds or credit derivatives. It is an advancement of an earlier three-factor model. In addition to a firm-specific credit risk factor, a new systematic risk factor in the form of GDP growth rate is included. This new model is set in the context of other hybrid defaultable bond pricing models and empirically compared to specific representatives. We find that a model based only on firm-specific variables is unable to capture changes in credit spreads completely. However, it is shown that in this model, market variables such as GDP growth rates, non-defaultable interest rates and firm-specific variables together significantly influence credit spread levels and changes.

Date: 2008
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/13504860701718430 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apmtfi:v:15:y:2008:i:3:p:219-249

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAMF20

DOI: 10.1080/13504860701718430

Access Statistics for this article

Applied Mathematical Finance is currently edited by Professor Ben Hambly and Christoph Reisinger

More articles in Applied Mathematical Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().