On Credit Spreads: An Autoregressve Model Approach

University essay from Lunds universitet/Matematisk statistik

Abstract: This thesis proposes an autoregressive credit spread model to make long term simulations of credit spreads and credit indices in the Investment grade and High yield bond segments. Several models are tested, and the final spread model produces simulations with statistics consistent with historical data, even though the model itself is relatively parsimonious. A transition from spread to index is proposed, which gives simulated indices with characteristics that match historical indices reasonably. Also, dependence between asset classes is introduced with a grouped t-copula.

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