The determinants of corporate credit spreads
Credit default swaps (CDSs) are an integral tool used for the management of credit risk by financial institutions. Despite their importance, good models for the determination of CDS spreads, also called corporate credit spreads, are not readily available. Robert Jarrow, Li Li, Mark Mesler and Donald van Deventer provide such a model
Estimating credit spreads is an essential component in marking-to-market a financial institution's fixed-income investment portfolio. Credit spreads can be estimated using either bond prices, as in Campbell & Taksler (2003), Collin-Dufresne, Goldstein & Martin (2001) and Elton et al (2001), or using credit default swap (CDS) spreads, as in Longstaff, Mithal & Neis (2005) and Ericsson, Jacobs & Oviedo (2007). Of the two estimation procedures, the CDS-based estimates may be preferred because of
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