The Pricing of Investment Grade Credit Risk During the Financial Crisis. Working Paper

This paper uses a structural model to investigate the pricing of investment grade credit risk during the \u85nancial crisis. Our analysis suggests that the dramatic recent widening of credit spreads is highly consistent with the decline in the equity market, the increase in its long-term volatility, and an improved investor appreciation of the risks embedded in structured products. In contrast to the main argument in favor of using government funds to help purchase structured credit securities, we \u85nd little evidence that suggests these markets are experiencing \u85re sales. Preliminary and Incomplete