RT Journal Article
SR Electronic
T1 Estimation of the Term Structure of CDS-Adjusted<br/>Risk-Free Interest Rates
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 29
OP 44
DO 10.3905/jfi.2014.24.2.029
VO 24
IS 2
A1 Yusho Kagraoka
A1 Zakaria Moussa
YR 2014
UL https://pm-research.com/content/24/2/29.abstract
AB A new methodology for the estimation of the term structure of risk-free rates, called the CDS-adjusted approach, is developed and empirically applied to the Japanese financial markets. The CDS-adjusted approach provides a term structure of risk-free interest rates that is consistent with both government bond yields and sovereign credit default swap (CDS) spreads. Naive approaches presume that government bonds are risk-free and ignore non-zero spreads of the sovereign CDS, but the CDS-adjusted approach does not have such a flaw because the default risk premium in the government bond yield is compensated for by the application of a reduced-form model of default risk to the sovereign CDS spread and the government bond spread.TOPICS: Credit default swaps, quantitative methods, developed