Floating-Fixed Credit Spreads
Posted: 20 Aug 2001
Abstract
We examine the term structure of yield spreads between floating-rate and fixed-rate notes of the same credit quality and maturity. Floating-fixed spreads are theoretically characterized in some practical cases and quantified in a simple model in terms of maturity, credit quality, yield volatility, yield-spread volatility, correlation between changes in yield spreads and default-free yields, and other determining variables. We show that if the issuer's default risk is risk-neutrally independent of interest rates, the sign of floating-fixed spreads is determined by the term structure of the risk-free forward rate.
Suggested Citation: Suggested Citation
Duffie, James Darrell and Liu, Jun, Floating-Fixed Credit Spreads. Available at SSRN: https://ssrn.com/abstract=272650
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