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Pascal Maenhout
Associate Professor of Finance
Journal Article
Maenhout P., Cremers M., Driessen J. (2008). Explaining the Level of Credit Spreads: Option-Implied Jump Risk Premia in a Firm Value Model Review of Financial Studies, 21(5), pp. 2209-2242.
The authors study whether option-implied jump risk premia can explain the high observed level of credit spreads (the `credit spread puzzle'). The authors use a structural jump-diffusion firm value model with systematic and firm-specific jumps to assess the level of credit spreads that is generated by option-implied jump risk premia.