@article {Zimmermann77, author = {Paul Zimmermann}, title = {Revisiting the Credit{\textendash}Equity Power Relationship}, volume = {24}, number = {3}, pages = {77--87}, year = {2014}, doi = {10.3905/jfi.2014.24.3.077}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The credit{\textendash}equity power relationship is an empirical parameterization of credit default swap (CDS) spreads by stock prices that is characterized by its credit{\textendash}equity elasticity parameter and that is popular among practitioners involved in capital structure arbitrage quantitative strategies. This article provides a theoretical foundation for the credit{\textendash}equity elasticity involving the financial leverage of the company. After underscoring the weaknesses of a calibrating approach relying exclusively on econometrics, the article highlights the practical relevance of this fundamental result in terms of credit{\textendash}equity calibration.TOPICS: Fixed income and structured finance, quantitative methods}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/24/3/77}, eprint = {https://jfi.pm-research.com/content/24/3/77.full.pdf}, journal = {The Journal of Fixed Income} }