Digital Commons Network^™

Hunting The Living Dead: A 'Peso Problem' In Corporate Liabilities Data, Umberto Cherubini, Matteo Manera

Matteo Manera

Recent literature has pointed out that information asymmetries may be the reason for the poor performance of structural credit risk models to fit corporate bond data. It is well known in fact that these models lead to a strong understatement of the credit spread terms structure, particularly on the short maturity end. Possible explanations stem from strategic debt service behavior and, as discovered more recently, the problem of accounting transparency. This raises the possibility that some of these flaws could be reconducted to a sort of “peso problem”, i.e. that the market may ask for a premium in order to …