Dynamic Interactions Between Interest Rate , Credit , and Liquidity Risks : Theory and Evidence from the Term Structure of Credit Default Swap Spreads

@inproceedings{Chen2005DynamicIB,
  title={Dynamic Interactions Between Interest Rate , Credit , and Liquidity Risks : Theory and Evidence from the Term Structure of Credit Default Swap Spreads},
  author={Ren-Raw Chen},
  year={2005}
}
Using a large data set on credit default swaps, we study how de fault risk interacts with interest-rate risk and liquidity risk to jointly determine the term struct re of credit spreads. We classify the reference companies into two broad industry sectors, two broad credit ating classes, and two liquidity groups. We develop a class of dynamic term structure models that includ e (i) two benchmark interest-rate factors to capture the libor and swap rates term structure, (ii) two c redit-risk… CONTINUE READING

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