R45.P2.T6.Malz_Ch7_v3
p25
Spread risk is the risk of loss from changes in the pricing of credit-risky securities. It is closer in nature to market risk as it is generated by changes in price
p27
Spread risk therefore encompasses both the market’s expectations of credit risk events and the credit spread it requires in equilibrium to put up with credit risk
Doesnt it seem to contradict each other?
My understanding is that the impact of a firm's credit rating (credit risk events) affects the spread which then generates the change in price. Why is it closer in nature to market risk?
p25
Spread risk is the risk of loss from changes in the pricing of credit-risky securities. It is closer in nature to market risk as it is generated by changes in price
p27
Spread risk therefore encompasses both the market’s expectations of credit risk events and the credit spread it requires in equilibrium to put up with credit risk
Doesnt it seem to contradict each other?
My understanding is that the impact of a firm's credit rating (credit risk events) affects the spread which then generates the change in price. Why is it closer in nature to market risk?