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The Joint Estimation of Term Structures and Credit Spreads

Patrick Houweling, J. Hoek and Frank Kleibergen ()

No EI 9916-/A, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: We present a new framework for the joint estimation of the default-free government term structure and corporate credit spread curves. By using a high-quality data set of German mark denominated bonds, we show that this yields more realistic spreads than conventionally obtained spread curves that result from subtracting independently estimated government and corporate term structures. The estimated spread curves are now smooth functions of time to maturity, as opposed to the twisting curves one gets from the traditional method, and are less sensitive to model specifications. Moreover, the implied corporate term structures have tighter confidence intervals.

Keywords: credit risk splines; estimation; term structure (search for similar items in EconPapers)
Date: 1999-03-31
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Journal Article: The joint estimation of term structures and credit spreads (2001) Downloads
Working Paper: The Joint Estimation of Term Structures and Credit Spreads (1999) Downloads
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