Measuring credit risk: The relation between CDS Spreads, the modified Merton model and credit ratings
Prior articles and reports have named Credit Default Swap (CDS) spreads as a plausible indicator of default risk. In this report, the authors present a significant correlation between CDS spreads and two other more acknowledged methods of measuring default risk probabilities; the modified Merton model and credit ratings from the rating institute Moody’s. The tests are implemented by Spearman’s ran
