Major power outage on downtown campus

Updated: Wed, 2014-04-16 11:09

A major power failure today, April 16th, is affecting a large section of the downtown campus. We expect power to be restored within the next few hours. 

Click here for more information on the buildings affected

Quick Links

"Pricing Credit Default Swaps with Observable Covariates," Review of Financial Studies

Published: 16 May 2013

Authors: Doshi, Hitesh; Jacobs, Kris; Ericsson, Jan; Turnbull, Stuart

Publication: Review of Financial Studies, April 2013


Observable covariates are useful for predicting default, but several studies question their value for explaining credit spreads. We introduce a discrete-time no-arbitrage model with observable covariates, which allows for a closed-form solution for the value of credit default swaps (CDS). The default intensity is a quadratic function of the covariates, specified such that it is always positive. The model yields economically plausible results in terms of fit, the economic impact of the covariates, and the prices of risk. Risk premiums are large and account for a smaller percentage of spreads for firms with lower credit quality.  Macroeconomic and firm-specific information can explain most of the variation in CDS spreads over time and across firms, even with a parsimonious specification. These findings resolve the existing disconnect in the literature regarding the value of observable covariates for credit risk pricing and default prediction.

Source Site: /desautels

Desautels Faculty of Management on Social Media

Desautels Faculty of Management at McGill on FacebookDesautels Faculty of Management at McGill on TwitterDesautels Faculty of Management at McGill, BCom Program on LinkedInDesautels Faculty of Management at McGill, MBA Program on LinkedInDesautels Faculty of Management at McGill on YouTube

Research at Desautels Faculty of Management

Accounting at Desautels Faculty of ManagementFinance at Desautels Faculty of ManagementInformation Systems at Desautels Faculty of ManagementMarketing at Desautels Faculty of ManagementOperations Management at Desautels Faculty of ManagementOrganizational Behaviour at Desautels Faculty of ManagementStrategy and Organization at Desautels Faculty of ManagementHealth Care at Desautels Faculty of Management