Title

Duration, Default Risk and Term Structure of Interest Rates

Publication Type

Journal Article

Publication Date

2005

Abstract

We examine the interactive effect of default and interest rate risk on duration of defaultable bonds. We show that duration for defaultable bonds can be longer or shorter than default-free bonds depending on the relation between default intensity and interest rates. Empirical evidence indicates that in most cases duration for defaultable bonds is much shorter than for their default-free counterparts because of the negative relation between default risk and interest rates. Results suggest that the duration measure must be adjusted for the effects of default risk and stochastic interest rates to achieve an effective bond portfolio immunization. [ABSTRACT FROM AUTHOR]

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Financial Research

Volume

28

Issue

4

First Page

539

Last Page

554

ISSN

0270-2592

Publisher

Wiley

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