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- Publisher
- Emerald Publishing
- Copyright
- Copyright © Emerald Group Publishing Limited
- ISSN
- 1526-5943
- DOI
- 10.1108/eb043456
- Publisher site
- See Article on Publisher Site
Abstract
In this second installment, the author addresses some of the problems associated with empirically validating contingentclaim models for valuing risky debt. The article uses a simple contingent claims risky debt valuation model to fit term structures of credit spreads derived from data for U.S. corporate bonds. An essential component to fitting this model is the use of expected default frequency the estimate of the firms' expected default probability over a specific time horizon. The author discusses the statistical and econometric procedures used in fitting the term structure of credit spreads and estimating model parameters. These include iteratively reweighted nonlinear least squares are used to dampen the impact of outliers and ensure convergence in each crosssectional estimation from 1992 to 1999.
Journal
The Journal of Risk Finance – Emerald Publishing
Published: Mar 1, 2000