Floating-Fixed Credit Spreads

Posted: 20 Aug 2001

See all articles by Darrell Duffie

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Canadian Derivatives Institute

Jun Liu

University of California, San Diego (UCSD) - Rady School of Management

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

Duffie, James Darrell and Liu, Jun, Floating-Fixed Credit Spreads. Available at SSRN: https://ssrn.com/abstract=272650

James Darrell Duffie (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Knight Management Center
Stanford, CA 94305-7298
United States
650-723-1976 (Phone)
650-725-8916 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Canadian Derivatives Institute ( email )

3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec H3T 2A7
Canada

Jun Liu

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858.534.2022 (Phone)
5858.534.0745 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,587
PlumX Metrics