Credit spreads, endogenous bankruptcy and liquidity risk

Fu, Jianping; Wang, Xingchun; Wang, Yongjin

doi:10.1007/s10287-012-0153-3

Cited by 5 publications

(7 citation statements)

References 20 publications

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“…A bond is associated with several risks. With an objective to show that even bonds with short maturities are impacted by credit spreads, a research was done on a bond valuation model considering both credit as well as liquidity risks (Fu, Wang, & Wang, 2012).…”

Section: Literature Reviewmentioning

confidence: 99%

Analysing Indian G-Secs with a Predictive Approach

Thomas

Madhanagopal

Ghosh

2017

UJBM

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The bond movement being observed keenly by the business communities across the world is primarily because of the fact that large organizations require a huge sum of money which cannot be met in the form of bank loans alone. The solution is to raise money from the public by issuing bonds. It is of equal interest to the investors because bonds are fixed income securities. In this market it is imperative to understand the interplay of macroeconomic factors such as inflation levels, interest rates, foreign exchange rates, purchasing power parity, price movements, monetary and fiscal policies. The rationale behind the decision to invest in a particular bond is directly influenced by the present value of the bond. This paper aims to build a model using Panel Data Regression to predict the present value of the bonds by considering the components of the term structure such as interest rates, maturity, bond yield etc.

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Section: Literature Reviewmentioning

confidence: 99%

Analysing Indian G-Secs with a Predictive Approach

Thomas

Madhanagopal

Ghosh

2017

UJBM

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“…Ericsson (2006) assumed that bondholders were subject to exogenous liquidity shocks, under which bonds are sold immediately at a discounted price in a perfectly liquid market, and the discount factor was uniformly distributed between 0 and 1. Fu (2012) assumed that exogenous liquidity shocks followed a Poisson process, and the discount factor was a constant.…”

Section: Introductionmentioning

confidence: 99%

“…Following Ericsson (2006) and Fu (2012), we assume that bondholders in an imperfect market have to sell bonds immediately at a fraction of their price in a perfectly liquid market and assume the fraction follows a stochastic process. Li (2021) used a similar idea and defined illiquidity as the value that bondholders must give up for bond liquidation, and they assumed credit risk and liquidity risk events followed a deterministic joint distribution.…”

Section: Introductionmentioning

confidence: 99%

The Liquidity Premium in China’s Corporate Bond Market: A Stochastic Liquidity Discount Approach

Xiao-ping

2022

Risks

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China’s bond market has been ranked third globally; however, China’s corporate bonds are significantly less liquid than its stocks. Liquidity risk is an important component in China’s corporate bond spreads. In this paper, we propose a stochastic liquidity discount factor model to evaluate the liquidity risk premium and its term structure in China’s corporate bond market. The Monte Carlo simulation technique is used to quantify the impact on the liquidity premium of various liquidity factors: the liquidity level, liquidity volatility, liquidity shock, and the liquidity elasticity. Our findings conclude that the liquidity level is the most significant component of a liquidity premium. The impact on the liquidity premium of other liquidity factors is all conditional on the liquidity level. In addition, the impact of liquidity shocks and volatility is also subject to the market’s equilibrium mechanism. Further, the term of a bond affects the premium both directly and indirectly through its influence on a bond’s liquidity.

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“…Studies on this topic include Leland (), Leland and Toft (), Chen and Kou (), Fu, Wang, and Wang (), He and Xiong () and He and Milbradt ().…”

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confidence: 99%

“…Studies on this topic includeLeland (1994),Leland and Toft (1996),Chen and Kou (2009), Fu, Wang, andWang (2012),He and Xiong (2012) andHe and Milbradt (2014).3 A partial list of studies on derivative pricing includesMerton (1976),Kou and Wang (2004),Bates (2008),Cai and Kou (2011), and G., whileHubalek, Kallsen, and Karwczyk (2006) and X. Wang and Y. Wang (2014)focus on hedging strategies.…”

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confidence: 99%

Differences in the Prices of Vulnerable Options with Different Counterparties

Wang

2016

Journal of Futures Markets

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In this paper, a new pricing model is proposed to investigate the differences in the prices of vulnerable options with different counterparties. I start by specifying the dynamics of the market portfolio, and then break down the risk of the underlying asset and the assets of the counterparties into systematic and idiosyncratic risk, which allows me to distinguish the counterparties from these two kinds of risk. Finally, the derived pricing formulae are used to illustrate the differences between vulnerable option prices. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:148–163, 2017

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Credit spreads, endogenous bankruptcy and liquidity risk

Cited by 5 publications

References 20 publications

Analysing Indian G-Secs with a Predictive Approach

Analysing Indian G-Secs with a Predictive Approach

The Liquidity Premium in China’s Corporate Bond Market: A Stochastic Liquidity Discount Approach

Differences in the Prices of Vulnerable Options with Different Counterparties

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