| Summary: | 碩士 === 淡江大學 === 財務金融學系 === 88 === The dollar value of default risk (DVDR) is measured by subtracting the observed trading price of a risky corporate bond from a Cox-Ingersoll-Ross model value of a corresponding pseudo-default-free bond. From an option pricing perspective, DVDR can be viewed as the value of a put option on the firm's risky assets .For the reason, this research uses the option valuation framework to identify and investigate the factors affecting the cross-sectional differences in individual high-yield bonds' default risk. The DVDR of an individual high-yield bond is hypothesized to be related to the bond rating, the time to maturity of the bond, the size of the issuing firm, the volatility of firm value, and the dividend yield of the issuing firm.
In our empirical results, we find the effect of time to maturity increase as the bond rating drops. Firm size effect is negatively related to the bond rating. The market assigns a higher DVDR to compensate for the DVDR of corporate bonds is similar to the "small company effect" in the case of return on equity. Besides, the empirical results in the case of the first four factors are consistent with the predictions form a put option perspective. And there is only a weaker positive relationship between DVDR and dividend yield.
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