Specification Analysis of Structural Credit Risk Models PDF
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In this paper we conduct a specification analysis of geomorphologic credit risk models, employing term structure of credit default swap (CDS) arises and equity volatility through high-frequency return data. Our study gives consistent econometric estimation with the pricing model parameters and specification tests in line with the joint behavior of time-series asset characteristics and cross-sectional rates errors. Our empirical checks reject strongly the typical Merton (1974) model, the actual Black and Cox (1976) barrier model, and also the Longstaff and Schwartz (1995) model with stochastic interest rates. The particular double exponential jump-diffusion barrier unit (Huang and Huang, 2003) improves significantly over the a few models. The best unit is the stationary power model of Collin- Dufresne and Goldstein (2001), which we can not reject in more as compared with half of our small sample firms. However, our scientific results document the not able of the existing morphologic models to capture the dynamic behavior of CDS spreads and equity unpredictability, especially for investment score names. This points to the potential role of time-varying asset excitability, a feature that is missing in the typical structural models.
Specification Analysis of Structural Credit Risk Models PDF:
http://www.federalreserve.gov/pubs/feds/2008/200855/200855pap.pdfQuick View PDF Download PDF
