What factors are driving forces for credit spreads?

The purpose of this study is to examine what affects the changes in credit spreads. A regression model was performed where the explanatory variables were; volatility,SP&500 index, interest-rate level the slope of yield curve and the dependent variable was credit spread for each of CSUSDA, CSUSDBBB, and CSUSDB. We found a positive correlation between these independent variables (Volatility, S&P 500index) and a negative correlation between interest-rate level and credit spreads.These results were consistent with our hypothesis. However, the link between the slope of yield curve and credit spreads was positive and that was inconsistent with our hypothesis and some previous studies. The conclusion of this paper was a change in credit spread is related to the variables that we used in our model. And these variables explained about 50 per cent of this change.


1 Introduction
1.1 Background
1.2 Problem Discussion
1.3 Research question
1.4 Purpose
1.5 Delimitations
1.6 The structure of this thesis
2 Theoretical Framework
2.1 Credit risk
2.1.1 Risks related to investments of bonds
2.1.2 Credit market and credit spread
2.1.3 Credit rating
2.1.4 Credit risk models & credit rating
2.1.5 Credit risk models
2.2 Historical background of BSM
2.3 Extension of (BSM) and previously made studies
2.4 BSM and theoretical elements of Credit spreads changes
3 Method
3.1 Quantitative and qualitative methods
3.2 Linear Regression Analysis
3.3 Statistical Method
3.3.1 Regression
3.3.2 R-square
3.3.3 P-Value
3.4 Overview of Data used in the study
In order to be able to run a regression analysis we needed to define the
dependent variables and independent variable
3.5 Dependent and Independent variables
3.5.1 The dependent variable
3.5.2 The independent variables
3.6 Reliability and Validity
3.6.1 Reliability
3.6.2 Validity
4 Empirical study
4.1 Hypothesis
4.2 Model
4.3 Credit spread change
5 Analysis
5.1 Credit spread change
5.2 Result of the study
5.2.1 Credit spread with credit rating A (CS USDA)
]5.2.2 Credit spread with credit rating BBB (CS USDBBB)
5.2.3 Credit spread with credit rating (B CS USB)
6 Conclusions
6.1 Fulfilment of the purpose
6.2 Further Research

Author: al Hussaini, Ammar

Source: Jonkoping University

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