Specification Analysis of Structural Credit Risk Models

摘要：

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 Longsta?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.

关键词： Structural Credit Risk Models Credit Default Swap Spreads High Frequency Equity Volatility Consistent Specification Analysis Pricing Error Diagnostics

作者: Jing-zhi Huang Hao Zhou

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

会议类型: 国际会议

会议名称: 2007年中国金融国际年会

会议地点: 成都

会议语种:英文

页码: 1-43

在线出版日期: 2007-07-09（万方平台首次上网日期，不代表论文的发表时间）