Long-term Mean Credit Spread Curves
Speaker
Abstract
In this research, the long term mean assumptions for credit spread curves for different ratings are determined. This is done using a model which converts historical cumulative default probabilities to risk-neutral ones and a constant though rating dependent assumption for the liquidity risk premium. The shapes of the constructed credit curves are consistent with the theoretical shapes of the credit spread curves. In addition, it is found that the model-implied spread curves are generally in line with the historical ones.
