Default Risk And The Effective Duration Of Bonds
- Topics:
- Equity
- Tags:
- Bond,
- Duration,
- Finance,
- Investment,
- Risk
- Source:
- World Bank Group
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Overview: Basis risk is the risk attributable to uncertain movements in the spread between yields associated with a particular financial instrument or class of instruments, and a reference interest rate over time. The authors focus on that, emphasizing the importance of taking credit risk into account when computing measures of duration. The consensus of all work in this area is that credit risk shortens the effective duration of corporate bonds. The authors estimate how much duration shorten because of credit risk, basing their estimates on observable data and easily estimated bond pricing parameters. Read the paper to learn more issues including investment risks, interest rates, bonds and duration.
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Format: PDF | Size: 905KB | Date: Sep 1995 | Pages: 22
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