期刊名称：Finance Publications / Centre for Financial Research, Cambridge University
出版年度：2004
卷号：2004
出版社：Cambridge University
摘要：In early 2004, new equity-credit hybrid derivatives that offered a larger spread than
vanilla credit default swaps were developed. At the centre of this development was the
equity default swap (EDS), which is the subject of this paper. Structural credit models allow
the simultaneous modelling of a firm’s credit quality and equity value, making them a natural
framework to price equity-credit hybrid derivatives. A closed-form expression for the spread
of an equity default swap, which incorporates the legal risk of the derivative, is derived in
terms of parameters of a general structural model. A specific structural model, that
developed by Leland & Toft, is calibrated by equity data and then used to investigate
properties of the EDS spread. It is seen that an equity default swap with a low trigger price
can have a substantially greater annual spread than a credit default swap. Also, it is shown
that unless the dividend yield is very high, the EDS spread increases as a firm’s debt-equity
ratio increases, assuming that the firm’s asset volatility is constant. However, if there are two
reference firms with different debt-equity ratios but the same equity volatility, it is shown that
there is a complex relationship between EDS spreads.
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