is 0.7472, implying that approximately 75% of market spreads can be explained by counterparty credit risk. In other words, counterparty risk alone can provide a good but not overwhelming prediction on spreads.
We then assess the joint effect. Because implied or model-generated spreads take into account both counterparty risk and collateralization, we assign the model-implied spreads as the explanatory variable and the market spreads as the response variable. The new adjusted