In this section, the reports deal with articles on asset pricing: asset pricing models, stochastic discount factors, equity premium puzzle, consumptionbased models, habitpersistence models, multifactor models, pricing anomalies, asset return predictability, credit spreads, credit models etc... 

Measuring Default Risk Premia from Default Swap Rates and EDFsThis paper estimates recent default risk premia for U.S. corporate debt, based on a close relationship between default probabilities, as estimated by Moody's KMV EDFs, and default swap (CDS) market rates. The defaultswap data, obtained through CIBC from 39 banks and specialty dealers, allow to establish a strong link between actual and riskneutral default probabilities for firms in the three sectors that the authors analyze: broadcasting and entertainment, healthcare, and oil and gas. The authors find dramatic variation over time in risk premia, from peaks in the third quarter of 2002, dropping by roughly 50% to late 2003. They run a panel data regression of log CDS on log EDF controlling for month and sectors. The slope is 0.76 and the intercept is positive. There is substantial risk premium. They look at the timevariation and sector variation of risk premium for a constant default probability. They then use a default intensity timeseries model. From the time series of EDF they estimate the default intensities assuming that the log of the default intensity follows an OrnsteinUhlenbeck process. From timeseries of CDS, they estimate riskneutral default intensities. They have estimates of the risk premium and comment on the fluctuation of the risk premium due to misestimate of default probabilities, time variation of riskneutral conditional expectation of loss given default, changes in the supply and demand for risk bearing, whose effects are exaggerated by some limits on capital mobility across segments of the capital market and principalagent inefficiencies in the asset management industry (risk aversion after recent losses, search for yield when treasury rates decline). Also credit premium might change due to change in correlation as it reduces the effect of diversification. Berndt, Antje, Douglas, Rohan and Schranz, David, "Measuring Default Risk Premia from Default Swap Rates and EDFs" . BIS Working Paper No. 173 Available at SSRN: http://ssrn.com/abstract=556080 





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