Individual Stock-Option Prices and Credit Spreads
Joost Driessen (),
Pascal Maenhout and
Yale School of Management Working Papers from Yale School of Management
This paper introduces measures of volatility and skewness that are based on individual stock options to explain credit spreads on corporate bonds. Implied volatilities of individual options are shown to contain important information for credit spreads and improve on both implied volatilities of index options and on historical volatilities when explaining the cross-sectional and time-series variation in a panel of corporate bond spreads. Both the level of individual implied volatilities and the implied-volatility skew matter for credit spreads. The empirical estimates are in line with the coefficients pred
Date: 2004-06-01, Revised 2005-01-01
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Journal Article: Individual stock-option prices and credit spreads (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:somwrk:amz2391
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