风险管理与金融机构课件Ch14.pptVIP

* * Risk-free Rate The risk-free rate used by bond traders when quoting credit spreads is the Treasury rate The risk-free rate used in the credit markets is the LIBOR/swap rate Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 * Asset Swaps Asset swaps are used by the market as an estimate of the bond yield relative to LIBOR The present value of the asset swap spread is the present value of the cost of default Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 * Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 Asset Swaps (page 299) Suppose asset swap spread for a particular corporate bond is 150 basis points One side pays coupons on the bond; the other pays LIBOR+150 basis points. The coupons on the bond are paid regardless of whether there is a default In addition there is an initial exchange of cash reflecting the difference between the bond price and $100 The PV of the asset swap spread is the amount by which the price of the corporate bond is exceeded by the price of a similar risk-free bond when the LIBOR/swap curve is used for discounting * Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 Using CDS Prices to Predict Default Probabilities Average default intensity over life of bond is approximately where s is the spread of the bond’s yield over the risk-free rate and R is the recovery rate * Risk Management and Financial Institutions 2e, Chapter 14, Copyright ? John C. Hull 2009 More Exact Calculation for Bonds (page 262) Suppose that a five year corporate bond pays a coupon of 6% per annum (semiannually). The yield is 7% with continuous compounding and the yield on a similar risk-free bond is 5% (with continuous compounding) The expected loss from defaults is 8.738. This can be calculated as the PV of asset swap spreads or as the difference between the market price of the bond and its