Learn More
How Much of the Corporate-Treasury Yield Spread Is Due to Credit Risk? No consensus has yet emerged from the existing credit risk literature on how much of the observed corporate-Treasury yield spreads can be explained by credit risk. In this paper, we propose a new calibration approach based on historical default data and show that one can indeed obtain(More)
I s sovereign credit risk primarily a country-specific type of risk? Or is sovereign credit driven primarily by global macroeconomic forces external to the country? Understanding the nature of sovereign credit risk is of key importance given the large and rapidly increasing size of the sovereign debt markets. Furthermore, the nature of sovereign credit risk(More)
* We are extremely grateful for detailed discussions with Bernard Dumas and Larry Epstein. We would also like to acknowledge comments and suggestions from 2002 meetings of the AFA. Abstract In this paper we develop a model of intertemporal portfolio choice where an investor accounts explicitly for the possibility of model misspecification. This work is(More)
We study corporate bond default rates using an extensive new data set spanning the 1866–2008 period. We find that the corporate bond market has repeatedly suffered clustered default events much worse than those experienced during the Great Depression. For example, during the railroad crisis of 1873–1875, total defaults amounted to 36% of the par value of(More)
The paper documents a persistent and thus far largely overlooked empirical regularity in the yield curve: the tendency for the term structure of long term forward rates to slope downwards. The persistence of this feature is demonstrated using data on US and UK Government conventional (nominal) bonds and UK Government index-linked bonds. We show that the(More)
This paper studies the capital market consequences of unique and unexpected mandatory disclosures of banks' liquidity and the resulting changes in banks' behavior. I employ a hand-collected sample of the disclosures of banks' borrowing from the US Federal Reserve Discount Window (DW) during the financial crisis. I find that these disclosures contain(More)
Value-at-risk methods which employ a linear (" delta only ") approximation to the relation between instrument values and the underlying risk factors are unlikely to be robust when applied to portfolios containing non-linear contracts such as options. The most widely used alternative to the delta-only approach involves revaluing each contract for a large(More)
1 A part of this study was undertaken while Viral Acharya was visiting Stanford-GSB. Some of the ideas in this project draw from the piece "Understanding and Managing Correlation Risk and Liquidity Risk," prepared for International Financial Risk Institute (IFRI) Roundtable, 29-30 September 2005, by Viral V. Acharya and Stephen Schaefer. The authors are(More)