会议专题

Specification Analysis of Structural Credit Risk Models

In this paper we conduct a specification analysis of structural credit risk models, using term structure of credit default swap (CDS) spreads and equity volatility from high-frequency return data. Our study provides consistent econometric estimation of the pricing model parameters and specification tests based on the joint behavior of time-series asset dynamics and cross-sectional pricing errors. Our empirical tests reject strongly the standard Merton (1974) model, the Black and Cox (1976) barrier model, and the Longstaff And Schwartz (1995) model with stochastic interest rates. The double exponential jump-diffusion barrier model (Huang and Huang, 2003) improves significantly over the three models. The best model is the stationary leverage model of Collin-Dufresne and Goldstein (2001), which we cannot reject in more than half of our sample firms. However, our empirical results document the inability of the existing structural models to capture the dynamic behavior of CDS spreads and equity volatility, especially for investment grade names. This points to a potential role of time-varying asset volatility, a feature that is missing in the standard structural models.

Structural Credit Risk Models Credit Default Swap Spreads High Fre- quency Equity Volatility Consistent Specification Analysis Pricing Error Diagnostics

Jing-zhi Huang Hao Zhou

Smeal College of Business,Penn State University,University Park,PA 16802 Division of Research and Statistics,Federal Reserve Board,Washington,D.C.20551

国际会议

2007年中国国际金融年会

成都

英文

2007-07-09(万方平台首次上网日期,不代表论文的发表时间)