merton.core.spread

Implied credit spread from a Merton-model PD.

Functions

implied_credit_spread(→ merton._typing.FloatArray)

Continuous-compounding credit spread implied by a horizon PD.

Module Contents

merton.core.spread.implied_credit_spread(pd: merton._typing.ArrayLike, T: merton._typing.ArrayLike, lgd: merton._typing.ArrayLike = 0.6, *, in_bps: bool = True) → merton._typing.FloatArray[source]

Continuous-compounding credit spread implied by a horizon PD.

\[s = -\frac{1}{T} \ln\!\bigl(1 - \text{PD} \cdot \text{LGD}\bigr)\]
Parameters:

  • pd – Cumulative probability of default over the horizon (decimal).

  • T – Horizon in years (must be > 0).

  • lgd – Loss given default (decimal, default 0.6 ≡ 60 % loss / 40 % recovery).

  • in_bps – Return basis points (True, default) instead of decimal.

Returns:

Annualised credit spread.

Return type:

FloatArray

Examples

>>> float(round(implied_credit_spread(0.01, 1.0, lgd=0.6), 2))
60.18