Abstract
Using the industry benchmark CreditGrades model to analyze credit default swap (CDS) spreads across a large number of companies during the 2007-09 credit crisis, the authors demonstrate that the performance of the model can be significantly improved by calibrating it with option-implied volatility rather than with historical volatility. Moreover, the advantage of using option-implied volatility is greater among companies with more volatile CDS spreads, more actively traded options, and lower credit ratings.
Original language | American English |
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Pages (from-to) | 67-76 |
Number of pages | 10 |
Journal | Financial Analysts Journal |
Volume | 67 |
Issue number | 4 |
DOIs | |
State | Published - 2011 |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics