Measuring Credit Spread Risk
2002-10-22
Research Paper
This publication is part of collection
| Related Files |
|---|
View PDF Version
(erimrs20021022160400.pdf, 0.4MB) |
It is widely known that the small but looming possibility of default renders the expected return distribution for financial products containing credit risk to be highly skewed and fat tailed. In this paper we apply recent techniques developed for incorporating the additional risk faced by changes in swap spreads. Using data from the US, UK, Germany, and Japan, we find that the risk faced from large spread widenings and tightenings is grossly underestimated. Estimation of swap spread risk is dramatically improved when the severity of the fat tails is measured and incorporated into current estimation techniques.
Keywords
Classifications using
Journal of Economic Literature (JEL) Classification System
- M41 : Accounting
- G3 : Corporate Finance and Governance
- M : Business Administration and Business Economics; Marketing; Accounting
- G24 : Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
Automatically Extracted Terms
- credit
- spread
- estimate
- distribution
- credit spread risk
- management
- shift
- january
- index
- credit spread
- credit risk
- student-t
- market
- tail index
- quantile estimates
- table
- probability
- japan
- huisman
- germany
