文档介绍：Chapter 26 Credit Risk
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Credit Ratings
In the S&P rating system, AAA is the best rating. After es AA, A, BBB, BB, B, C
The corresponding Moody’s ratings are Aaa, Aa, A, Baa, Ba, B, and Caa
Bonds with ratings of BBB (or Baa) and above are considered to be “investment grade”
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Information from Bond Prices
Traders regularly estimate the zero curves for bonds with different credit ratings
This allows them to estimate probabilities of default in a risk-neutral world
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Typical Pattern (See Figure , page 611)
Spread over Treasuries
Maturity
Baa/BBB
A/A
Aa/AA
Aaa/AAA
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
The Risk-Free Rate
Most analysts use the LIBOR rate as the risk-free rate
The excess of the value of a risk-free bond over a similar corporate bond equals the present value of the cost of defaults
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Example (Zero coupon rates; pounded)
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Example continued
One-year risk-free bond (principal=$1) sells for
One-year corporate bond (principal=$1) sells for
or at a % discount
This indicates that the holder of the corporate bond expects to lose % from defaults in the first year
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Example continued
Similarly the holder of the corporate bond expects to lose
or % in the first two years
Between years one and two the expected loss is %
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Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull
Example continued
Similarly the bond holder expects to lose % in the first three years; % in the first four years; % in the first five years
The expected losses per year in e