The relationship between credit default swap spreads, bond yields, and credit rating announcements

Article Abstract:

Credit default swaps are a recent innovation in the Capital markets. The relationship between credit default swap market and ratings announcements is analyzed in two ways. Reviews for downgrade contain significant information compared to downgrades and negative outlooks, and the credit default swap market anticipates all three types. Either credit spread changes or credit spread levels are useful in estimating probability of negative credit rating changes. Results show that the top quartile of credit default swap changes account for 42.6% of downgrades, 39.8% of all reviews for downgrade and 50.9% of negative outlooks.

Forecasts, trends, outlooks, Science & research, Management dynamics, Research, Management, Forecasts and trends, Capital market, Capital markets, Market trend/market analysis, Credit ratings, Company business management

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The impact of default risk on the prices of options and other derivative securities

Article Abstract:

A model for the valuation of derivative securities that incorporates default risk is developed. The value of the security is shown to be affected by the no-default value of the security, default-free zero-coupon bonds and vulnerable zero-coupon bonds. The upper and lower bounds of European options prices can be determined analytically. Numerical applications are also possible with sufficient data on the variables affecting defaults.

Models, Prices and rates, Options (Finance), Derivatives (Financial instruments), Valuation, Investment analysis, Securities analysis

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One factor interest-rate models and the valuation of interest-rate derivative securities

Article Abstract:

A procedure is described for implementing one-factor models of interest rates for the interpretation of yield curve movements. T.S.Y. Ho and S.B. Lee first introduced the no-arbitrage yield curve model for short-term interest rates in 1986. The study introduces a numerical procedure that employs trinomial trees for implementing models.

Analysis, Interest rates, Portrayals, Financial instruments

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