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The Joint Estimation of Term Structures and Credit Spreads

Patrick Houweling, Jaap Hoek and Frank Kleibergen ()
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Jaap Hoek: Robeco Group

No 99-027/4, Tinbergen Institute Discussion Papers from Tinbergen 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 data set of liquid, German mark denominated bonds, we show that this yields more realistic spreads than traditionally obtained spread curves that result from subtracting independently estimated government and corporate term structures. The obtained spread curves are 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. To determine the ‘optimal’ model specification, we use a newly developed test statistic that compares spread curves from competing models. This discussion paper has resulted in a publication in the Journal of Empirical Finance , 2001, 8(3), 297-323.

Keywords: Term structure estimation; Credit spreads; Corporate bonds; Splines (search for similar items in EconPapers)
JEL-codes: G12 G13 C13 (search for similar items in EconPapers)
Date: 1999-04-14
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Related works:
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)
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