A CERTAINTY EQUIVALENT APPROACH TO MUNICIPAL BOND DEFAULT RISK ESTIMATION

Chunchi Wu

doi:10.1111/j.1475-6803.1991.tb00661.x

A CERTAINTY EQUIVALENT APPROACH TO MUNICIPAL BOND DEFAULT RISK ESTIMATION

Chunchi Wu

Finance

Research output: Contribution to journal › Article › peer-review

13 Scopus citations

Abstract

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.

Original language	English
Pages (from-to)	241-247
Number of pages	7
Journal	Journal of Financial Research
Volume	14
Issue number	3
DOIs	https://doi.org/10.1111/j.1475-6803.1991.tb00661.x
State	Published - 1991

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10.1111/j.1475-6803.1991.tb00661.x

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title = "A CERTAINTY EQUIVALENT APPROACH TO MUNICIPAL BOND DEFAULT RISK ESTIMATION",

abstract = "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.",

author = "Chunchi Wu",

year = "1991",

doi = "10.1111/j.1475-6803.1991.tb00661.x",

language = "English",

volume = "14",

pages = "241--247",

journal = "Journal of Financial Research",

issn = "0270-2592",

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AU - Wu, Chunchi

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N2 - 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.

AB - 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.

UR - https://www.scopus.com/pages/publications/84986492457

U2 - 10.1111/j.1475-6803.1991.tb00661.x

DO - 10.1111/j.1475-6803.1991.tb00661.x

M3 - Article

AN - SCOPUS:84986492457

SN - 0270-2592

VL - 14

SP - 241

EP - 247

JO - Journal of Financial Research

JF - Journal of Financial Research

IS - 3

ER -

A CERTAINTY EQUIVALENT APPROACH TO MUNICIPAL BOND DEFAULT RISK ESTIMATION

Abstract

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