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Measuring the default risk of bonds using yields to maturity

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  • Thomas A. Lawler

Abstract

In both the theoretical and empirical literature of finance the relative riskiness of two debt instruments identical in all respects save the likelihood of default on payments of principal and/or interest has generally been measured by the difference between the yields to maturity of the two debt instruments.

Suggested Citation

  • Thomas A. Lawler, 1978. "Measuring the default risk of bonds using yields to maturity," Working Paper 78-04, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:78-04
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    References listed on IDEAS

    as
    1. Yawitz, Jess B., 1977. "An Analytical Model of Interest Rate Differentials and Different Default Recoveries," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(3), pages 481-490, September.
    2. Lawrence Fisher, 1959. "Determinants of Risk Premiums on Corporate Bonds," Journal of Political Economy, University of Chicago Press, vol. 67(3), pages 217-217.
    3. Jaffee, Dwight M., 1975. "Cyclical variations in the risk structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 1(3), pages 309-325, July.
    4. Silvers, J B, 1973. "An Alternative to the Yield Spread as a Measure of Risk," Journal of Finance, American Finance Association, vol. 28(4), pages 933-955, September.
    5. Cook, Timothy Q & Hendershott, Patric H, 1978. "The Impact of Taxes, Risk and Relative Security Supplies on Interest Rate Differentials," Journal of Finance, American Finance Association, vol. 33(4), pages 1173-1186, September.
    6. Benson, Earl D & Rogowski, Robert J, 1978. "The Cyclical Behavior of Risk Spreads on New Municipal Issues," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(3), pages 348-362, August.
    7. Bierman, Harold & Hass, Jerome E., 1975. "An Analytical Model of Bond Risk Differentials," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(5), pages 757-773, December.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Bonds; Risk;

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