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Different kinds of risk premium

Business & Finance
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What kinds of risk premiums do we see today for bonds of different ratings?f

Oct 31st, 2014

A good approximation for the risk-neutral default intensity per year for a bond is 

(y-r)(1-R)

where y is the bond’s yield, r is the yield on a risk-free bond promising the same cash 

flows as the bond, and R is the recovery rate. In applying equation (1) we used the Merrill 

Lynch bond indices. These indices report the yield on U.S. dollar denominated corporate 

bonds with different credit ratings at the end of each month. 

Reference:

http://www-2.rotman.utoronto.ca/~hull/downloadablepublications/CreditSpreads.pdf


Oct 31st, 2014

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