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| Author: | Manzoni, K. |
| Title: | Modeling credit spreads An application to the sterling Eurobond market |
| Journal: | International Review of Financial Analysis
2002 : VOL. 11:2, p. 183-218 |
| Index terms: | CREDIT RISK MODELS MODEL TESTING MARKETS |
| Language: | eng |
| Abstract: | This paper can be considered as a new perspective to analyze credit spreads. The authors follow a time-series approach revealing the forces driving credit spread changes and volatility. Specifically, the authors aim to identify the process that describes the dynamic evolution of credit spreads on the sterling Eurobond index in the period 1991-1999. The time-series properties of credit spreads provide strong evidence of nonlinearities and high levels of intertemporal dependence in the credit spread generating process. The authors introduce time- varying volatility models to capture the persistence in the conditional variance of credit spreads. To the authors' knowledge, autoregressive conditional heteroskedastic models (ARCH and GARCH) have never been applied to credit spreads. |
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