The intersection of market and credit risk

Jarrow, Robert A.; Turnbull, Stuart M.

doi:10.1016/s0378-4266(99)00060-6

Cited by 235 publications

(109 citation statements)

References 74 publications

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“…But clearly this assumption does not hold: interest rates risk and credit risk are highly interdependent and, therefore, need to be assessed jointly. Jarrow and Turnbull (2000) are among the first to show theoretically how to integrate interest rate (among other market risks) and credit risk. They propose a simple two factor model where the default intensity of borrowers is driven by interest rates and an equity price index, which in turn are correlated.…”

Section: Literaturementioning

confidence: 99%

An economic capital model integrating credit and interest rate risk in the banking book

Alessandri¹,

Drehmann²

2010

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract 4 Non-technical summary 5 Terms of use: Documents in

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Section: Literaturementioning

confidence: 99%

An economic capital model integrating credit and interest rate risk in the banking book

Alessandri¹,

Drehmann²

2010

Journal of Banking & Finance

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“…This pattern highlights the effect of the interaction of market risk and credit risk on the dynamics of credit spreads. Jarrow and Turnbull (2000) suggest that incorporating macroeconomic variables may improve a reduced-form model of credit spreads. Duffie, Saita and Wang (2007) use macroeconomic variables, such as industrial production growth, to help better predict corporate defaults.…”

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confidence: 99%

Market conditions, default risk and credit spreads

Tang

Yan

2010

Journal of Banking & Finance

281

131

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This study empirically examines the impact of the interaction between market and default risk on corporate credit spreads. Using credit default swap (CDS) spreads, we find that average credit spreads decrease in GDP growth rate, but increase in GDP growth volatility and jump risk in the equity market. At the market level, investor sentiment is the most important determinant of credit spreads. At the firm level, credit spreads generally rise with cash flow volatility and beta, with the effect of cash flow beta varying with market conditions. We identify implied volatility as the most significant determinant of default risk among firmlevel characteristics. Overall, a major portion of individual credit spreads is accounted for by firm-level determinants of default risk, while macroeconomic variables are directly responsible for a lesser portion.

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“…As noted by Jarrow and Turnbull (2000), the time horizon commonly used in the literature to measure credit risk issues is one year. For example, Servigny and Renault (2002), which developed the methodology we use to calculate the empirical correlations in this paper, also assume one year as the time horizon.…”

Section: Dataset Of Microdatamentioning

confidence: 99%