Defaultable Bonds and Default Correlation
Imperial College Business School
University of Auckland - Business School
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
Date posted: November 25, 2002