Antonio Díaz - Academia.edu (original) (raw)

Papers by Antonio Díaz

Research paper thumbnail of The Effects of Credit Rating Announcements on Bond Liquidity: An Event Study

Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2017

This paper investigates liquidity shocks on the US corporate bond market around credit rating cha... more This paper investigates liquidity shocks on the US corporate bond market around credit rating change announcements. These shocks may be induced by the information content of the announcement itself, and abnormal trading activity can be triggered by the release of information after any upgrade or downgrade. Our findings show that: (1) the market anticipates rating changes, since trends liquidity proxies prelude the event, and additionally, large volume transactions are detected the day before the downgrade; (2) the concrete materialization of the announcement is not fully anticipated, since we only observe price overreaction immediately after downgrades; (3) a clear asymmetric reaction to positive and negative rating events is observed; (4) different agency-specific and rating-specific features are able to explain liquidity behavior around rating events; (5) financial distress periods exacerbate liquidity responses derived from downgrades and upgrades.

Research paper thumbnail of Discrepancies in the underlying zero coupon yield curve

Financial literature and financial industry use often zero coupon yield curves as input for testi... more Financial literature and financial industry use often zero coupon yield curves as input for testing hypotheses, pricing assets or managing risk. They assume this provided data as accurate. We analyse implications of the methodology and of the sample selection criteria used to estimate the zero coupon bond yield term structure on several financial purposes. As input we consider our own spot rates estimation from GovPX bond data and three popular interest rates data sets: from the Federal Reserve Board, from the US Department of the Treasury (H15), and from Bloomberg. First, we obtain the volatility term structure using historical volatilities and Egarch volatilities. Second, we estimate correlation coefficients among forward rates. Third, we price a set of simple interest rate derivatives. We find strong evidence that the resulting zero coupon bond yield volatility estimates as well as the correlation coefficients among spot and forward rates depend significantly on the data set. We observe relevant differences in economic terms when volatilities are used to price derivatives. We also show the impacts of the yield curve choice for the results of classic term structure hypothesis tests.

Research paper thumbnail of The Problem of Estimating the Volatility of Zero Coupon Bond Interest Rate

Financial literature and financial industry use often zero coupon yield curves as input for testi... more Financial literature and financial industry use often zero coupon yield curves as input for testing hypotheses, pricing assets or managing risk. They assume this provided data as accurate. We analyse implications of the methodology and of the sample selection criteria used to estimate the zero coupon bond yield term structure on the resulting volatility of spot rates with different maturities. We obtain the volatility term structure using historical volatilities and Egarch volatilities. As input for these volatilities we consider our own spot rates estimation from GovPX bond data and three popular interest rates data sets: from the Federal Reserve Board, from the US Department of the Treasury (H15), and from Bloomberg. We find strong evidence that the resulting zero coupon bond yield volatility estimates as well as the correlation coefficients among spot and forward rates depend significantly on the data set. We observe relevant differences in economic terms when volatilities are us...

Research paper thumbnail of Risk quantification in turmoil markets

Research paper thumbnail of El efecto edad en la liquidez de la Deuda del Estado

En este trabajo se analiza la relación entre liquidez y edad de los activos de renta fija. En est... more En este trabajo se analiza la relación entre liquidez y edad de los activos de renta fija. En este sentido se estudian los efectos del envejecimiento de los bonos sobre su volumen y frecuencia de negociación encontrando unos diferenciales de rentabilidad significativos entre el rendimiento de los bonos recién emitidos y de los bonos más antiguos con un plazo hasta la amortización similar. Asimismo, se estima el diferencial de rentabilidad entre un bono dado que se negocia en diferentes mercados; observando cómo este diferencial es mayor cuanto más viejo es el bono. Estas relaciones entre liquidez y edad, y por tanto, entre rendimientos y edad conducen a una estructura temporal de las primas de liquidez decrecientes.

Research paper thumbnail of The Critical Parameters

In recent years, we have learned much about modelling term struc-tures subject to credit risk. Ho... more In recent years, we have learned much about modelling term struc-tures subject to credit risk. However, there is little empirical work re-garding such basic issues as the relative importance of different parameters, describing credit risk and whether correlation between credit risk and pure (default-free) interest rates really matters. Indeed, we do not know if we should not parameterise credit risk at all and instead apply pure interest rate modelling methods directly to interest rates subject to credit risk. We address these questions by implementing binomial stochastic process-es for pure rates of interest and credit risk in an arbitrage-free framework. The resulting models yield replicating portfolios of state prices (synthetic corporate zeros) that can be used to price credit derivatives. Since the whole point of modelling credit risk is to obtain accurate prices, we examine how different stochastic processes change the distribution of state prices and therefore credit derivati...

Research paper thumbnail of Testing Contingent Immunization: Evidence from the Spanish Treasury market

Research paper thumbnail of Emisiones bonificadas: rentabilidad y lavado de cupón

Hacienda Publica Espanola

We analyse the strong effect of tax on trade of bonus securities. We get average yield spreads ag... more We analyse the strong effect of tax on trade of bonus securities. We get average yield spreads against Treasury bonds for bonus of “1.2%” and “25c1” modalities during the period within years 1993 and 1997. Also we estimate tax premium between bonus and not bonus issues of electric companies. On the other hand, we study causes and effects on their yield and their consequences in trade volume of coupon laundering operations.

Research paper thumbnail of Determinants of trading activity after rating actions in the Corporate Debt Market

The influence of rating announcements on corporate debt market trading has been previously overlo... more The influence of rating announcements on corporate debt market trading has been previously overlooked. Based on an event study, we examine the effects of the three types of announcements provided by credit rating agencies on abnormal trading volume and trading frequency in the Spanish corporate debt market. Additionally, by means of cross-section regressions, we establish what factors determine the sign and intensity of the trading reactions. The presented results indicate that factors related to the characteristics of the rating announcement, the issuing company and the economic environment are relevant in light of several hypotheses.

Research paper thumbnail of Estimating the volatility term structure

Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2010

The use of general descriptive names, registered names, trademarks, etc. in this publication does... more The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.

Research paper thumbnail of On Modelling Credit Risk Using Arbitrage Free Models

SSRN Electronic Journal, 2000

Page 1. On Modelling Credit Risk Using Arbitrage Free Models * Frank S. Skinner Antonio Díaz June... more Page 1. On Modelling Credit Risk Using Arbitrage Free Models * Frank S. Skinner Antonio Díaz June 12, 1998 Revised Nov 27, 1998, April 1999, March 2000 This Version, December 2000 JEL Classification: G13 Key Words ...

Research paper thumbnail of Liquidity Premiums Between Treasury Asset Markets

SSRN Electronic Journal, 2000

This paper examines the factors which explain the liquidity premium in the Spanish government sec... more This paper examines the factors which explain the liquidity premium in the Spanish government securities market. First, we study the degree of liquidity and the relationship to the factors it depends on, observing the differences between two kinds of assets, bills and notes, and between two markets that can be considered as retail market (the Electronic Stock Exchange, ETS) and wholesale market (the Bank of Spain's book entry system, MDPA). Our study reveals the convenience of splitting up the life of bonds into three different stages: prebenchmark, benchmark and seasoned. Second, we analyse the spreads between yields at which bonds and bills are traded the same day in the ETS and in the MDPA. Liquidity premiums between both markets can be explained by two sorts of variables. There is a set of variables that captures the idiosyncrasy of each issue, mainly the age, and other set of variables that captures some specific features of the ETS market that may give rise to additional liquidity premiums.

Research paper thumbnail of Influence of Rating Announcements and Their Characteristics on Abnormal Liquidity in Corporate Debt Market

The influence of rating announcements on corporate debt market liquidity has been ignored for a l... more The influence of rating announcements on corporate debt market liquidity has been ignored for a long time. Based on an event study, this article examines the effects of the announcements of actual rating changes, outlook notices, and CreditWatch placements provided by Moody's, Standard and Poor's and Fitch on abnormal liquidity in the Spanish corporate debt market. Also, by means of cross-section regressions, we establish what factors determine the sign and intensity of the liquidity reactions. The presented results indicate that factors related to the characteristics of the rating announcement, the issuing company and the economic environment are relevant in light of several hypotheses.

Research paper thumbnail of Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case

Research in International Business and Finance, 2009

We study the short run response of daily stock prices on the Spanish market to the announcements ... more We study the short run response of daily stock prices on the Spanish market to the announcements of inflation news at an industrial level, deepening the potential explanatory factors of this response (risk-free interest rate, risk premium and growth expectations). We observe a positive and significant response of the stock returns in case of “bad news” (total inflation rate higher

Research paper thumbnail of Term structure of volatilities and yield curve estimation methodology

Quantitative Finance, 2011

and-conditions-of-access.pdf This article may be used for research, teaching and private study pu... more and-conditions-of-access.pdf This article may be used for research, teaching and private study purposes. Any substantial or systematic reproduction, redistribution , reselling , loan or sub-licensing, systematic supply or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.

Research paper thumbnail of El Diferencial De Rentabilidad en La Deuda Privada Española

staragon.com

En la literatura no existe un consenso respecto a la relación entre el diferencial de rentabilida... more En la literatura no existe un consenso respecto a la relación entre el diferencial de rentabilidad y el plazo hasta el vencimiento. Este trabajo se centra en el estudio de dicho comportamiento en la deuda privada española, así como en el análisis de temas conexos. Encontramos: (1) en términos generales, la calificación crediticia aporta una información relevante acerca del diferencial de rentabilidad asociado a cada emisor; (2) a diferencia de otros mercados, en España existe una relación negativa entre el diferencial de rentabilidad y el plazo hasta la amortización; (3) una posible explicación de este comportamiento es la pérdida de liquidez de las emisiones conforme transcurre el tiempo desde su emisión. Palabras clave: renta fija española, riesgo de insolvencia, diferencial de rentabilidad, plazo hasta el vencimiento, liquidez.

Research paper thumbnail of What drives corporate default risk premia? Evidence from the CDS market

Journal of International Money and Finance, 2013

This paper studies the evolution of the default risk premia for European firms during the years s... more This paper studies the evolution of the default risk premia for European firms during the years surrounding the recent credit crisis. We employ the information embedded in Credit Default Swaps (CDS) and Moody's KMV EDF default probabilities to analyze the common factors driving this risk premia. The risk premium is characterized in several directions: Firstly, we perform a panel data analysis to capture the relationship between CDS spreads and actual default probabilities. Secondly, we employ the intensity framework of Jarrow et al. (2005) in order to measure the theoretical effect of risk premium on expected bond returns. Thirdly, we carry out a dynamic panel data to identify the macroeconomic sources of risk premium. Finally, a vector autoregressive model analyzes which proportion of the co-movement is attributable to financial or macro variables. Our estimations report coefficients for risk premium substantially higher than previously referred for US firms and a time varying behavior. A dominant factor explains around 60% of the common movements in risk premia. Additionally, empirical evidence suggests a public-to-private risk transfer between the sovereign CDS spreads and corporate risk premia.

Research paper thumbnail of International evidence on alternative models of the term structure of volatilities

Journal of Futures Markets, 2009

We would like to thank the editor and an anonymous referee for their helpful comments and suggest... more We would like to thank the editor and an anonymous referee for their helpful comments and suggestions. We acknowledge the financial support provided by Ministerio de Ciencia y Tecnología grant SEJ2005-08931-C02-01/ECON and SEJ2006-15401-C04-04 (partially financed by FEDER funds) and Junta de Comunidades de Castilla-La Mancha grant PCI08-0089. Any errors are entirely our own.

Research paper thumbnail of Estimating Corporate Yield Curves

The Journal of Fixed Income, 2001

By appealing to arbitrage free pricing theory, our tests show that we can expect less reliable co... more By appealing to arbitrage free pricing theory, our tests show that we can expect less reliable corporate yield curve estimates than Treasury yield curve estimates. We then examine the structure of errors produced by common statistical yield curve models. We find that even with careful data selection, significant liquidity and tax-induced errors remain. However, we find that the size of the errors due to liquidity and tax effects is modest. Furthermore, we find that when estimating corporate yield curves, we can pool bonds by broad rating category with no significant deterioration in yield curve estimates.

Research paper thumbnail of An Empirical Study of Credit Default Swaps

The Journal of Fixed Income, 2003

We examine the pricing of Asian and non-Asian credit default swaps that traded during the 1997 to... more We examine the pricing of Asian and non-Asian credit default swaps that traded during the 1997 to 1999 time period. We employ two credit risk models, Duffie and Singleton (1999) and Jarrow and Turnbull (1995). We argue that credit default swaps should have a positive economic value since credit spreads reflect differences in liquidity as well as credit risk. However, in the presence of moral hazard we expect to see negative economic values since asymmetric information would motivate sellers of credit default swaps to demand a "restructuring premium". While we generally find positive economic values for credit default swaps, both models find negative economic values for Asian credit default swaps during the recent Asian currency crisis, which we attribute to moral hazard.

Research paper thumbnail of The Effects of Credit Rating Announcements on Bond Liquidity: An Event Study

Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2017

This paper investigates liquidity shocks on the US corporate bond market around credit rating cha... more This paper investigates liquidity shocks on the US corporate bond market around credit rating change announcements. These shocks may be induced by the information content of the announcement itself, and abnormal trading activity can be triggered by the release of information after any upgrade or downgrade. Our findings show that: (1) the market anticipates rating changes, since trends liquidity proxies prelude the event, and additionally, large volume transactions are detected the day before the downgrade; (2) the concrete materialization of the announcement is not fully anticipated, since we only observe price overreaction immediately after downgrades; (3) a clear asymmetric reaction to positive and negative rating events is observed; (4) different agency-specific and rating-specific features are able to explain liquidity behavior around rating events; (5) financial distress periods exacerbate liquidity responses derived from downgrades and upgrades.

Research paper thumbnail of Discrepancies in the underlying zero coupon yield curve

Financial literature and financial industry use often zero coupon yield curves as input for testi... more Financial literature and financial industry use often zero coupon yield curves as input for testing hypotheses, pricing assets or managing risk. They assume this provided data as accurate. We analyse implications of the methodology and of the sample selection criteria used to estimate the zero coupon bond yield term structure on several financial purposes. As input we consider our own spot rates estimation from GovPX bond data and three popular interest rates data sets: from the Federal Reserve Board, from the US Department of the Treasury (H15), and from Bloomberg. First, we obtain the volatility term structure using historical volatilities and Egarch volatilities. Second, we estimate correlation coefficients among forward rates. Third, we price a set of simple interest rate derivatives. We find strong evidence that the resulting zero coupon bond yield volatility estimates as well as the correlation coefficients among spot and forward rates depend significantly on the data set. We observe relevant differences in economic terms when volatilities are used to price derivatives. We also show the impacts of the yield curve choice for the results of classic term structure hypothesis tests.

Research paper thumbnail of The Problem of Estimating the Volatility of Zero Coupon Bond Interest Rate

Financial literature and financial industry use often zero coupon yield curves as input for testi... more Financial literature and financial industry use often zero coupon yield curves as input for testing hypotheses, pricing assets or managing risk. They assume this provided data as accurate. We analyse implications of the methodology and of the sample selection criteria used to estimate the zero coupon bond yield term structure on the resulting volatility of spot rates with different maturities. We obtain the volatility term structure using historical volatilities and Egarch volatilities. As input for these volatilities we consider our own spot rates estimation from GovPX bond data and three popular interest rates data sets: from the Federal Reserve Board, from the US Department of the Treasury (H15), and from Bloomberg. We find strong evidence that the resulting zero coupon bond yield volatility estimates as well as the correlation coefficients among spot and forward rates depend significantly on the data set. We observe relevant differences in economic terms when volatilities are us...

Research paper thumbnail of Risk quantification in turmoil markets

Research paper thumbnail of El efecto edad en la liquidez de la Deuda del Estado

En este trabajo se analiza la relación entre liquidez y edad de los activos de renta fija. En est... more En este trabajo se analiza la relación entre liquidez y edad de los activos de renta fija. En este sentido se estudian los efectos del envejecimiento de los bonos sobre su volumen y frecuencia de negociación encontrando unos diferenciales de rentabilidad significativos entre el rendimiento de los bonos recién emitidos y de los bonos más antiguos con un plazo hasta la amortización similar. Asimismo, se estima el diferencial de rentabilidad entre un bono dado que se negocia en diferentes mercados; observando cómo este diferencial es mayor cuanto más viejo es el bono. Estas relaciones entre liquidez y edad, y por tanto, entre rendimientos y edad conducen a una estructura temporal de las primas de liquidez decrecientes.

Research paper thumbnail of The Critical Parameters

In recent years, we have learned much about modelling term struc-tures subject to credit risk. Ho... more In recent years, we have learned much about modelling term struc-tures subject to credit risk. However, there is little empirical work re-garding such basic issues as the relative importance of different parameters, describing credit risk and whether correlation between credit risk and pure (default-free) interest rates really matters. Indeed, we do not know if we should not parameterise credit risk at all and instead apply pure interest rate modelling methods directly to interest rates subject to credit risk. We address these questions by implementing binomial stochastic process-es for pure rates of interest and credit risk in an arbitrage-free framework. The resulting models yield replicating portfolios of state prices (synthetic corporate zeros) that can be used to price credit derivatives. Since the whole point of modelling credit risk is to obtain accurate prices, we examine how different stochastic processes change the distribution of state prices and therefore credit derivati...

Research paper thumbnail of Testing Contingent Immunization: Evidence from the Spanish Treasury market

Research paper thumbnail of Emisiones bonificadas: rentabilidad y lavado de cupón

Hacienda Publica Espanola

We analyse the strong effect of tax on trade of bonus securities. We get average yield spreads ag... more We analyse the strong effect of tax on trade of bonus securities. We get average yield spreads against Treasury bonds for bonus of “1.2%” and “25c1” modalities during the period within years 1993 and 1997. Also we estimate tax premium between bonus and not bonus issues of electric companies. On the other hand, we study causes and effects on their yield and their consequences in trade volume of coupon laundering operations.

Research paper thumbnail of Determinants of trading activity after rating actions in the Corporate Debt Market

The influence of rating announcements on corporate debt market trading has been previously overlo... more The influence of rating announcements on corporate debt market trading has been previously overlooked. Based on an event study, we examine the effects of the three types of announcements provided by credit rating agencies on abnormal trading volume and trading frequency in the Spanish corporate debt market. Additionally, by means of cross-section regressions, we establish what factors determine the sign and intensity of the trading reactions. The presented results indicate that factors related to the characteristics of the rating announcement, the issuing company and the economic environment are relevant in light of several hypotheses.

Research paper thumbnail of Estimating the volatility term structure

Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2010

The use of general descriptive names, registered names, trademarks, etc. in this publication does... more The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.

Research paper thumbnail of On Modelling Credit Risk Using Arbitrage Free Models

SSRN Electronic Journal, 2000

Page 1. On Modelling Credit Risk Using Arbitrage Free Models * Frank S. Skinner Antonio Díaz June... more Page 1. On Modelling Credit Risk Using Arbitrage Free Models * Frank S. Skinner Antonio Díaz June 12, 1998 Revised Nov 27, 1998, April 1999, March 2000 This Version, December 2000 JEL Classification: G13 Key Words ...

Research paper thumbnail of Liquidity Premiums Between Treasury Asset Markets

SSRN Electronic Journal, 2000

This paper examines the factors which explain the liquidity premium in the Spanish government sec... more This paper examines the factors which explain the liquidity premium in the Spanish government securities market. First, we study the degree of liquidity and the relationship to the factors it depends on, observing the differences between two kinds of assets, bills and notes, and between two markets that can be considered as retail market (the Electronic Stock Exchange, ETS) and wholesale market (the Bank of Spain's book entry system, MDPA). Our study reveals the convenience of splitting up the life of bonds into three different stages: prebenchmark, benchmark and seasoned. Second, we analyse the spreads between yields at which bonds and bills are traded the same day in the ETS and in the MDPA. Liquidity premiums between both markets can be explained by two sorts of variables. There is a set of variables that captures the idiosyncrasy of each issue, mainly the age, and other set of variables that captures some specific features of the ETS market that may give rise to additional liquidity premiums.

Research paper thumbnail of Influence of Rating Announcements and Their Characteristics on Abnormal Liquidity in Corporate Debt Market

The influence of rating announcements on corporate debt market liquidity has been ignored for a l... more The influence of rating announcements on corporate debt market liquidity has been ignored for a long time. Based on an event study, this article examines the effects of the announcements of actual rating changes, outlook notices, and CreditWatch placements provided by Moody's, Standard and Poor's and Fitch on abnormal liquidity in the Spanish corporate debt market. Also, by means of cross-section regressions, we establish what factors determine the sign and intensity of the liquidity reactions. The presented results indicate that factors related to the characteristics of the rating announcement, the issuing company and the economic environment are relevant in light of several hypotheses.

Research paper thumbnail of Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case

Research in International Business and Finance, 2009

We study the short run response of daily stock prices on the Spanish market to the announcements ... more We study the short run response of daily stock prices on the Spanish market to the announcements of inflation news at an industrial level, deepening the potential explanatory factors of this response (risk-free interest rate, risk premium and growth expectations). We observe a positive and significant response of the stock returns in case of “bad news” (total inflation rate higher

Research paper thumbnail of Term structure of volatilities and yield curve estimation methodology

Quantitative Finance, 2011

and-conditions-of-access.pdf This article may be used for research, teaching and private study pu... more and-conditions-of-access.pdf This article may be used for research, teaching and private study purposes. Any substantial or systematic reproduction, redistribution , reselling , loan or sub-licensing, systematic supply or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.

Research paper thumbnail of El Diferencial De Rentabilidad en La Deuda Privada Española

staragon.com

En la literatura no existe un consenso respecto a la relación entre el diferencial de rentabilida... more En la literatura no existe un consenso respecto a la relación entre el diferencial de rentabilidad y el plazo hasta el vencimiento. Este trabajo se centra en el estudio de dicho comportamiento en la deuda privada española, así como en el análisis de temas conexos. Encontramos: (1) en términos generales, la calificación crediticia aporta una información relevante acerca del diferencial de rentabilidad asociado a cada emisor; (2) a diferencia de otros mercados, en España existe una relación negativa entre el diferencial de rentabilidad y el plazo hasta la amortización; (3) una posible explicación de este comportamiento es la pérdida de liquidez de las emisiones conforme transcurre el tiempo desde su emisión. Palabras clave: renta fija española, riesgo de insolvencia, diferencial de rentabilidad, plazo hasta el vencimiento, liquidez.

Research paper thumbnail of What drives corporate default risk premia? Evidence from the CDS market

Journal of International Money and Finance, 2013

This paper studies the evolution of the default risk premia for European firms during the years s... more This paper studies the evolution of the default risk premia for European firms during the years surrounding the recent credit crisis. We employ the information embedded in Credit Default Swaps (CDS) and Moody's KMV EDF default probabilities to analyze the common factors driving this risk premia. The risk premium is characterized in several directions: Firstly, we perform a panel data analysis to capture the relationship between CDS spreads and actual default probabilities. Secondly, we employ the intensity framework of Jarrow et al. (2005) in order to measure the theoretical effect of risk premium on expected bond returns. Thirdly, we carry out a dynamic panel data to identify the macroeconomic sources of risk premium. Finally, a vector autoregressive model analyzes which proportion of the co-movement is attributable to financial or macro variables. Our estimations report coefficients for risk premium substantially higher than previously referred for US firms and a time varying behavior. A dominant factor explains around 60% of the common movements in risk premia. Additionally, empirical evidence suggests a public-to-private risk transfer between the sovereign CDS spreads and corporate risk premia.

Research paper thumbnail of International evidence on alternative models of the term structure of volatilities

Journal of Futures Markets, 2009

We would like to thank the editor and an anonymous referee for their helpful comments and suggest... more We would like to thank the editor and an anonymous referee for their helpful comments and suggestions. We acknowledge the financial support provided by Ministerio de Ciencia y Tecnología grant SEJ2005-08931-C02-01/ECON and SEJ2006-15401-C04-04 (partially financed by FEDER funds) and Junta de Comunidades de Castilla-La Mancha grant PCI08-0089. Any errors are entirely our own.

Research paper thumbnail of Estimating Corporate Yield Curves

The Journal of Fixed Income, 2001

By appealing to arbitrage free pricing theory, our tests show that we can expect less reliable co... more By appealing to arbitrage free pricing theory, our tests show that we can expect less reliable corporate yield curve estimates than Treasury yield curve estimates. We then examine the structure of errors produced by common statistical yield curve models. We find that even with careful data selection, significant liquidity and tax-induced errors remain. However, we find that the size of the errors due to liquidity and tax effects is modest. Furthermore, we find that when estimating corporate yield curves, we can pool bonds by broad rating category with no significant deterioration in yield curve estimates.

Research paper thumbnail of An Empirical Study of Credit Default Swaps

The Journal of Fixed Income, 2003

We examine the pricing of Asian and non-Asian credit default swaps that traded during the 1997 to... more We examine the pricing of Asian and non-Asian credit default swaps that traded during the 1997 to 1999 time period. We employ two credit risk models, Duffie and Singleton (1999) and Jarrow and Turnbull (1995). We argue that credit default swaps should have a positive economic value since credit spreads reflect differences in liquidity as well as credit risk. However, in the presence of moral hazard we expect to see negative economic values since asymmetric information would motivate sellers of credit default swaps to demand a "restructuring premium". While we generally find positive economic values for credit default swaps, both models find negative economic values for Asian credit default swaps during the recent Asian currency crisis, which we attribute to moral hazard.