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Defaultable Bonds and Default Correlation

Lara Cathcart

Imperial College Business School

Lina El-Jahel

University of Auckland - Business School

December 2002

AFA 2003 Washington, DC Meetings

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.

Number of Pages in PDF File: 41

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Date posted: November 25, 2002  

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

Contact Information

Lara Cathcart (Contact Author)
Imperial College Business School ( email )
South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 (0) 20 7594 9126 (Phone)
+44 (0) 20 7594 9189 (Fax)
Lina El-Jahel
University of Auckland - Business School ( email )
12 Grafton Rd
Auckland, 1010
New Zealand
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References:  49
Citations:  5