41 Pages Posted: 25 Nov 2002
Date Written: December 2002
This paper provides a closed form solution for the pricing of defaultable bonds and default correlation. In a stochastic interest rates framework default occurs when the value of the assets of the firm either hits a stochastic boundary of default or according to a stochastic hazard rate. The model combines the advantages of structural and reduced form models and thus generates credit spreads and default correlations consistent with empirical observation.
Suggested Citation: Suggested Citation
Cathcart, Lara and El-Jahel, Lina, Defaultable Bonds and Default Correlation (December 2002). AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=331883 or http://dx.doi.org/10.2139/ssrn.331883