Credit risk models enhance link between credit and equity prices, say BIS

The growing use of credit risk models is helping to strengthen the link between credit and equity prices, said the Bank for International Settlements (BIS).

The integration of the credit and equity markets in the past year has improved the “price discovery process by facilitating the adjustment of prices in different financial markets to new information”, the BIS said in its annual report published on Monday.

“Linkages between markets were also strengthened by the development of markets for the transfer of credit risk, especially credit derivatives markets,” the report said. “Prior to the introduction of credit derivatives, the credit markets