Pricing Corporate and Sovereign Bonds
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Credit risk is one of the oldest forms of risk in the financial markets, and still revolutionary changes and developments are taking place in the credit markets today. To emphasize the growing importance of this market segment and its risks which shouldn’t be ignored, we first give a brief overview of the latest credit market and credit risk developments.
KeywordsCredit Risk European Monetary Union Credit Spread Yield Spread Default Time
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- 6.See Historical Default Rates of Corporate Bond Issuers, 1920–1999 (2000a) and Hamilton, Cantor & Ou (2002).Google Scholar
- 16.See, e.g., exhibit 2 on page 222 in Wilson (1998) which shows the dramatically falling margins which banks earn from the traditional loan product.Google Scholar
- 19.Note, that in this text we do not treat the theory of pricing non defaultable bonds at length. Readers not familiar with this theory at all are refered to the excellent textbook of Brigo & Mercurio (2001).Google Scholar
- 23.See, e.g., Harrison & Pliska (1981) and Duffle, Schroder & Skiadas (1996).Google Scholar
- 26.See, e.g., Briys, Bellalah, Mai & de Varenne (1998), p. 78.Google Scholar
- 27.For an introduction to change of numéraire and change of time techniques see, e.g., Briys et al. (1998), chapter 4.Google Scholar
- 29.For an introduction to the Heath-Jarrow-Morton framework see, e.g., Heath, Jarrow & Morton (1992).Google Scholar