Credit default swap rates and stock prices

Marco Realdon

Applied Financial Economics Letters, 2008, vol. 4, issue 4, 241-248

Abstract: This article presents, estimates and tests a credit default swap (CDS) pricing model, which links a firm's default intensity to its observed stock price. The pricing model requires finite difference numerical solutions. In spite of this quasi-maximum likelihood parameter estimation is still feasible. Evidence from a sample of large corporations confirms the validity of the link between the firm's stock price and default intensity.

Date: 2008
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DOI: 10.1080/17446540701720493

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