Explaining Credit Default Swap Spreads with the Equity Volatility and Jump Risks of Individual Firms

摘要：

A structural model with stochastic volatility and jumps implies specific relationships between observed equity returns and credit spreads. This paper explores such eects in the credit default swap (CDS) market. We use a novel approach to identify the realized jumps of individual equities from high frequency data. Our empirical results suggest that volatility risk alone predicts 50 percent of the variation in CDS spreads, while jump risk alone forecasts 19 percent. After controlling for credit ratings, macroeconomic conditions, and firms’ balance sheet information, we can explain 77 percent of the total variation. Moreover, the pricing eects of volatility and jump measures vary consistently across investment-grade and high-yield entities. The estimated nonlinear eects of volatility and jumps are in line with the model-implied relationships between equity returns and credit spreads.

关键词： Structural Model Stochastic Volatility Jumps Credit Spread Credit Default Swap Nonlinear Effect High-Frequency Data.

作者: Benjamin Yibin Zhang Hao Zhou Haibin Zhu

作者单位: Benjamin Yibin Zhang, Fitch Ratings, One State Street Plaza, New York, NY 10004, USA. Hao Zhou, Federal Reserve Board,Mail Stop91,Washington, DC 20551, USA. Haibin Zhu, Bank for International Settlements, Centralbahnplatz 2, 4002 Basel, Switzerland.

会议类型: 国际会议

会议名称: 2006年中国国际金融年会

会议地点: 西安

会议语种:英文

在线出版日期: 2006-07-17（万方平台首次上网日期，不代表论文的发表时间）