On Correlation and Default Clustering in Credit Markets

• 成果类型: Article
• 署名作者: Berndt, Antje; Ritchken, Peter; Sun, Zhiqiang
• 署名单位: University System of Ohio; Case Western Reserve University; Carnegie Mellon University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhq015
• 发表日期: 2010
• 页码: 2680
• 关键词: INTEREST-RATE DYNAMICS; term structure; RISK STRUCTURE; volatility; consistent; models; curve; debt

摘要

We establish Markovian models in the Heath, Jarrow, and Morton (1992) paradigm that permit an exponential affine representation of riskless and risky bond prices while offering significant flexibility in the choice of volatility structures. Estimating models in our family is typically no more difficult than in the workhorse affine family. Besides diffusive and jump-induced default correlations, defaults can impact the credit spreads of surviving firms, allowing for a greater clustering of defaults. Numerical implementations highlight the importance of incorporating interest rate credit spread correlations, credit spread impact factors, and the full credit spread curve when building a unified framework for pricing credit derivatives. (JEL C32, C51, G12)