Full paper available here.
Mariam Harfush-Pardo, Robert Lamb and William Perraudin
This paper generalizes a class of ratings-based credit derivative models proposed by Jarrow, Lando, and Turnbull (1997) and Kijima and Komorib-ayashi (1998) to allow for stochastic spreads and then applies this model to analyze empirically the pricing of large cross sections of corporate bonds and Asset Backed Securities. We show that measuring risk in credit portfolios is highly sensitive to the inclusion of randomness in spreads.
