A Certainty Eqivalent Approach to Municipal Bond Default Risk Estimation
This paper extends the risk-neutrality default model of municipal bonds to consider the effect of risk aversion on the estimation of default probability. A model is proposed to separate the default risk assessment from the investor's risk aversion. Empirical results show that the risk-neutrality model consistently overestimates the default probability but that the magnitude of this overestimate is generally small and statistically insignificant.
Journal of Financial Research
A Certainty Eqivalent Approach to Municipal Bond Default Risk Estimation. (1991). Journal of Financial Research. 3, (3), 241-247. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/812