Li, Yan;
(2004)
Essays on credit risk modeling.
Doctoral thesis (Ph.D), UCL (University College London).
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Abstract
This thesis attempts to extend researches on two of the most important issues in credit risk modelling, the relationship between credit risk and interest rate risk, and the co-movement of credit spreads. The former plays an important role in credit risk pricing and risk management and has been actively studied over the past few years. Many extant theoretical models of credit risk pricing predict that there is a negative relation between credit spreads and interest rates. Recently there have been a few attempts to study this relationship in a dynamic way. It has been found that the relation is negative in the short run but in the long run it becomes positive. Recent empirical studies have also raised the issue of co-movement of credit spreads. There is evidence that credit and liquidity proxies can only explain a small part of the variations of the change of credit spreads. A large part of the unexplained residues can be attributed to systematic factors or unknown common factors. In this thesis we address the above two issues theoretically and empirically. In chapter 2, we develop a theoretical model, which can accommodate negative as well as positive relationship between credit spreads and interest rates. We empirically study the dynamic of this relationship in the framework of a Markov switching error-correction model in chapter 3. Chapter 4 is a comprehensive study of the of sovereign credit spreads. We use a reduced model to explore the relation between sovereign spreads and risk free interest rates, the co-movement of sovereign credit spreads, the source of co-movement, the term structure of sovereign spreads and the influence of co-movement on sovereign term structure.
| Type: | Thesis (Doctoral) |
|---|---|
| Qualification: | Ph.D |
| Title: | Essays on credit risk modeling |
| Open access status: | An open access version is available from UCL Discovery |
| Language: | English |
| Additional information: | Thesis digitised by ProQuest. |
| Keywords: | Social sciences; Credit risk modeling |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10099596 |
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