Estimating credit default swap spreads from equity data

Corporate bonds are an attractive form of investment as they provide higher returns than government bonds. This increase in returns is usually associated with an increase in risk. These risks include liquidity, market and credit risk. This dissertation will focus on the modelling of a corporate bond's credit risk by considering how to estimate the credit default swap (CDS) spread of a firm's bond. A structural credit model will be used to do this. In this dissertation, we implement an extension of Merton's model by Hull, Nelken and White (2004), which is based on the use of the implied volatilities of options on the company's stock to estimate model parameters. Such an approach provides an insight into the relationship between credit markets and options markets.

Grantor dc:publisher.institution

Division of Actuarial Science

Year dc:date.issued

2014

Author dc:creator

• Kooverjee, Jateen

Advisor dc:contributor.advisor

• Cunanne, Steven

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/8525

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/8525