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Credit Risk and Interest Rate Risk
Year Of Publication: 1999
Month Of Publication: September
Pages: 20
Download Count: 1093
View Count: 7975
Comment Num: 0
Language: EN
Who Can Read: Free
Date: 6-19-2004
Publisher: Administrator
This paper investigates the relation between credit and market risk over long in-vestment horizons. We split credit risk into transition and spread risk so that resultscan be directly related to ratings-based credit risk models which adopt this decom-position. We nd that spread risk for high credit quality exposures exhibits variablebut generally negative correlation with interest rate changes. For low credit qualityspreads, the correlation is markedly negative. Transition risk is also negatively cor-related with interest rate changes in that VaRs are distinctly higher when calculatedusing a transition matrix based on years of data in which interest rates fall.
Kiesel, Rudiger T. Sign in to follow this author
Perraudin, William Sign in to follow this author
Taylor, Alex Sign in to follow this author
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