New model accurately predicts corporate bond default probabilities over 5 years.
The article compares different models of corporate bond yields using data from the US market. By analyzing factors like bond ratings, interest rates, and market volatility, the researchers found that models with flexible bankruptcy barriers fit well. These models show that changes in a company's debt levels and asset risk can explain variations in bond yields over time. The study also calculated the likelihood of a company defaulting within a certain period, with results aligning with historical data from credit rating agencies.