Modelling the Liquidity Risk Premium on Corporate Bonds

Tuesday, April 1, 2014: 8:30 a.m.
Maryland Suite C (Washington Marriott Wardman Park)
This talk will discuss the different methods that can be used
to assess the liquidity risk premium (LRP) component of credit
spreads on corporate bonds. We will focus on two techniques.
First, the LRP can be modelled in a number
of different ways and we will discuss progress with regression
techniques where a proxy for the LRP is regressed against various
observeable market variables. Second we will look at how structural
models for credit risk can be developed to incorporate bid-ask
spreads. We will use the latter as a pedagogical tool to
derive stylised facts about the nature of the LRP.

Joint work with:

Alex McNeil, Paul van Loon

*Awarded ERM/Financial Track Prize

Presentation 1
Andrew J.G. Cairns, Professor, Heriot-Watt University
  • ICA2010vanLoon.Cairns.Draft20130819.pdf (2.4 MB)