Chen, Ren-Raw, Frank J. Fabozzi, Ging-Ging Pan, and Ronald Sverdlove, "Sources of Credit Risk: Evidence from Credit Default Swaps", Journal of Fixed Income, Vol. 16, No. 3, (Winter 2006), pp. 7-21.

Abstract: The major sources of credit risk are default probability and recovery. Together with interest rate risk, they determine the price of credit derivatives. In this article, we study the relative importance of these sources by testing pair-nested structural models with data from credit default swaps. By comparing pairs of models that are nested in terms of their assumptions about these sources (one model is a special case, or restriction, of the other), we are able to understand what causes a pricing model to succeed or fail. Using credit default swap data from 2/15/2000 through 4/8/2003, we find that random interest rates and random (asset value) recovery are important assumptions for achieving accurate pricing, while continuous default times (as opposed to a single default time) is not.