On The Term Structure of Default Premia in The Swap And LIBOR Markets  

Oleh:

Collin-Dufresne, Pierre ; Solnik, Bruno

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 56 no. 3 (2001), page 1095-1115.
Topik: MARKETS; studies; swap arrangements; spread; risk; default; models; LIBOR; statistical analysis
Fulltext: p 1095.pdf (224.32KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

A model of the default risk imbedded in the swap term structure is proposed that is able to explain the LIBOR - swap spread. Whereas corporate bonds carry default risk, it is argued that swap contracts are free of default risk. Because swaps are indexed on "refreshed" - credit - quality LIBOR rates, the spread between corporate yields and swap rates should capture the market's expectations of the probability of deterioration in credit quality of a corporate bond issuer. This feature is modeled and the model is used to estimate the likelihood of future deterioration in credit quality from the LIBOR - swap spread. The analysis is important because it shows that the term structure of swap rates does not reflect the borrowing cost of a standard LIBOR credit quality issuer.

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