@article {Zheng67, author = {C.K. Zheng}, title = {Understanding the Default-Implied Volatility for Credit Spreads}, volume = {7}, number = {4}, pages = {67--77}, year = {2000}, doi = {10.3905/jod.2000.319135}, publisher = {Institutional Investor Journals Umbrella}, abstract = {One useful way to model default risk in bonds is as a form of option within the contingent claims framework. Zheng shows how a defaultable bond can be thought of as a combination of a default-free bond and a short position in a certain kind of barrier option. In that case, it is possible to compute an implied volatility of the default spread from the (implied) price of that option. With such a volatility estimate, one can price credit derivatives using the market{\textquoteright}s implied credit spread volatility. Zheng illustrates the approach by computing an implied volatility curve and applying it to value a credit spread put and a first-to-default swap.}, issn = {1074-1240}, URL = {https://jod.pm-research.com/content/7/4/67}, eprint = {https://jod.pm-research.com/content/7/4/67.full.pdf}, journal = {The Journal of Derivatives} }