On bounding credit event risk premia

Arbeitspapier

Reduced-form models of default that attribute a large fraction of credit spreads to compensation for credit event risk typically preclude the most plausible economic justification for such risk to be priced - namely, a contagious response of the market portfolio during the credit event. When this channel is introduced within a general equilibrium framework for an economy comprised of a large number of firms, credit event risk premia have an upper bound of just a few basis points and are dwarfed by the contagion premium. We provide empirical evidence supporting the view that credit event risk premia are minuscule.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 577

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; General Financial Markets: General (includes Measurement and Data)

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bai, Jennie ; Collin-Dufresne, Pierre ; Goldstein, Robert S. ; Helwege, Jean
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/93645
• Last update: 10.03.2025, 11:42 AM CET