arbiter
JournalsAccount

Credit-Implied Volatility

Bryan Kelly et al.

Financial Analysts Journal2025https://doi.org/10.1080/0015198x.2025.2473251article
AJG 3ABDC A
Weight
0.36

Abstract

We define and construct a credit-implied volatility (CIV) surface from the firm-by-maturity panel of credit default swap (CDS) spreads. We use this framework to organize the behavior of corporate credit markets into three stylized facts. First, CIV exhibits a steep moneyness smirk. Second, the joint dynamics of credit spreads on all firms are captured by three interpretable factors in the CIV surface. Third, the cross-section of CDS risk premia is fully explained by exposures to CIV surface shocks. We propose a structural model for joint asset behavior of all firms that is characterized by stochastic volatility and time-varying downside tail risk in aggregate asset growth.

1 citation

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1080/0015198x.2025.2473251

Or copy a formatted citation

@article{bryan2025,
  title        = {{Credit-Implied Volatility}},
  author       = {Bryan Kelly et al.},
  journal      = {Financial Analysts Journal},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1080/0015198x.2025.2473251},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

Credit-Implied Volatility

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.36

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.