Hostname: page-component-78c5997874-s2hrs Total loading time: 0 Render date: 2024-11-15T20:26:33.009Z Has data issue: false hasContentIssue false
  • English
  • Français

An Analytical Model of Interest Rate Differentials and Different Default Recoveries

Published online by Cambridge University Press:  19 October 2009

Jess B. Yawitz
Get access Rights & Permissions [Opens in a new window]

Extract

In this paper we have extended the Bierman-Hass model to include the effect of a second parameter, the terms of settlement in the event of default. The addition of this second factor was found to not alter the independence between a bond's risk differential and its maturity. Our analysis of the required risk differential for various borrower credit characteristics demonstrates the tradeoff between p and γ. Throughout, we have assumed the loan size does not affect p or γ.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 12 , Issue 3 , September 1977 , pp. 481 - 490
Copyright
Copyright © School of Business Administration, University of Washington 1977

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Bierman, Harold Jr., and Hass, Jerome E.. “An Analytic Model of Bond Risk Differentials.” Journal of Financial and Quantitative Analysis, (December 1975), pp. 757–773.CrossRefGoogle Scholar
[2]Cheng, Pao Lun. “Optimal Bond Portfolio Selection.” Management Science (July 1962), pp. 490–499.CrossRefGoogle Scholar
[3]Crane, Dwight B. “Stochastic Programming Model for Commercial Bank Bond Portfolio Management.” Journal of Financial and Quantitative Analysis (June 1971), pp. 955–976.Google Scholar
[4]Fisher, Lawrence. “Determinants of Risk Premiums on Corporate Bonds.” The Journal of Political Economy (June 1959), pp. 217–237CrossRefGoogle Scholar
[5]Fisher, Lawrence, and Weil, Roman. “Coping with the Risk of Interest Rate Fluctuations: Returns of Bondholders from Naive and Optimal Strategies.” Journal of Business (October 1971), pp. 408–431.CrossRefGoogle Scholar
[6]Grove, Myron A. “On ‘Duration’ and the Optimal Maturity Structure of the Balance Sheet.” The Bell Journal (Autumn 1974), pp. 696–709.Google Scholar
[7]Hopewell, Michael, and Kaufman, George. “Bond Price Volatility and Term to Maturity: A Generalized Respecification.” A.E.R. (September 1973), pp. 749–753.Google Scholar
[8]Macaulay, Frederick R.Some Theoretical Problems Suggested by the Movement of Interest Rates, Bond Yields and Stock Prices in the U.S. since 1856. New York (1938).Google Scholar
[9]Samuelson, Paul A. “The Effects of Interest Rate Increases on the Banking System.” A.E.R. (March 1945), pp. 16–27.Google Scholar
[10]Silver, J. B. “An Alternative to the Yield Spread as a Measure of Risk.” The Journal of Finance (September 1973), pp. 933–955.CrossRefGoogle Scholar
[11]Watson, Ronald D. “Tests of Maturity Structures of Commercial Bank Government Securities Portfolios: A Simulation Approach.” Journal of Bank Research (Spring 1972), pp. 34–46.Google Scholar
[12]Wolf, Charles R. “A Model for Selecting Commercial Bank Government Securities Portfolios.” The Review of Economics and Statistics (February 1969), pp. 40–52.CrossRefGoogle Scholar
[13]Yawitz, Jess B. “The Relative Importance of Duration and Yield Volatility on Bond Price Volatility.” Journal of Money, Credit, and Banking (February 1977), pp. 97–102.CrossRefGoogle Scholar
[14]Yawitz, Jess B.; Hempel, George H.; and Marshall, William J.. “A Risk-Return Approach to the Selection of Optimal Government Bond Portfolios.” Financial Management (Autumn 1976), pp. 36–47.Google Scholar
[15]Yawitz, Jess B. “The Use of Average Maturity as a Risk Proxy in Investment Portfolios.” Journal of Finance (May 1975), pp. 325–333.CrossRefGoogle Scholar
[16]Yawitz, Jess B. “Risk Premia on Municipal Bonds.” Forthcoming. Journal of Financial and Quantitative Analysis.Google Scholar