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Individual Stock-Option Prices and Credit Spreads

Author

Listed:
  • Martijn Cremers
  • Joost Driessen
  • Pascal Maenhout
  • David Weinbaum

Abstract

This paper introduces measures of volatility and skewness that are based on individual stock options to explain credit spreads on corporate bonds. Implied volatilities of individual options are shown to contain important information for credit spreads and improve on both implied volatilities of index options and on historical volatilities when explaining the cross-sectional and time-series variation in a panel of corporate bond spreads. Both the level of individual implied volatilities and the implied-volatility skew matter for credit spreads. The empirical estimates are in line with the coefficients pred

Suggested Citation

  • Martijn Cremers & Joost Driessen & Pascal Maenhout & David Weinbaum, 2004. "Individual Stock-Option Prices and Credit Spreads," Yale School of Management Working Papers amz2391, Yale School of Management, revised 01 Jan 2005.
    • Handle: RePEc:ysm:wpaper:amz2391
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    File URL: https://repec.som.yale.edu/icfpub/publications/2391.pdf
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    References listed on IDEAS

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    Cited by:

    1. Becchetti, Leonardo & Carpentieri, Andrea & Hasan, Iftekhar, 2009. "The determinants of option-adjusted delta credit spreads: a comparative analysis of the United States, the United Kingdom and the euro area," Bank of Finland Research Discussion Papers 34/2009, Bank of Finland.

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