Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5085359 | International Review of Financial Analysis | 2007 | 16 Pages |
Abstract
This paper introduces a simple parameterization for the risk-neutral default probability distributions for risky firms that are easily computed from quoted bond prices. The corresponding expected times to default have a particularly simple form and are proposed as a measure for credit risk. Being continuous in nature, times to default provide a much finer measure of risk than those provided by ratings agencies. Comparison with the ratings provided by Moody's and the distance to default measures calculated using the Merton [Merton, R. (1974). On the pricing of corporate debt: the risk structure of interest rates. Journal of Finance, 2(2), 449-470] model shows that the highest rank correlation is found between the proposed time to default measure and Moody's ratings.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Hans Byström, Oh Kang Kwon,