2
votes
0answers
291 views

What is an appropriate hedge ratio for hedging a credit instrument with equity of the same issuer?

Given a bond and a stock issued by the same issuer, what is the appropriate ratio of bond-to-stock one should hold in order to minimize the specific risk to that issuer? Equivalently, what is the ...
7
votes
1answer
2k views

How to estimate probability of default from bond prices?

How do you use bond prices/yields to infer probabilities of default? I would think of it as follows: Create a relationship between default free (e.g., Germany) and defaultable (e.g., Greece) bond ...