Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2005:7: Default Probabilities According to the Bond Market

Hans Byström () and Oh Kang Kwon ()
Additional contact information
Hans Byström: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Oh Kang Kwon: Discipline of Finance,University of Sydney., Postal: Discipline of Finance, University of Sydney

Abstract: In this paper we describe a simple way of analytically computing entire ìterm structures of default probabilities using information embedded in the corporate bond market data. This market-based approach of estimating the creditworthiness of firms gives probabilities of default at various maturities, and has the advantage over traditional credit ratings in that it is dynamic and forward looking.

Keywords: bond market; default probability term structure

JEL-codes: C20; G33

13 pages, January 26, 2005

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