Semi-analytical pricing of defaultable bonds in a signaling jump-default model

Cathcart, Lara; El-Jahel, Lina

doi:10.21314/jcf.2003.105

Cited by 30 publications

(59 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In addition, Brady bonds are partially collateralised and the collateral can be considered as a proxy for the recovery rate. We use an extended structural model suggested by Cathcart and El-Jahel (2003) and estimate it with a Kalman Filter to obtain the distance-to-default. The only other empirical test of this model is in a companion paper (Diaz Weigel and Gemmill, 2003) which focuses on methodological issues and uses the bonds of one nation (Mexico); here we are more interested in the economic factors which determine creditworthiness across four nations.…”

Section: Introductionmentioning

confidence: 99%

What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements

Weigel¹,

Gemmill

2006

Journal of International Money and Finance

View full text Add to dashboard Cite

Section: Introductionmentioning

confidence: 99%

What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements

Weigel¹,

Gemmill

2006

Journal of International Money and Finance

View full text Add to dashboard Cite

“…ζ is a random variable independent from {z P } and {N P }, which are assumed to be independent 15 . Such a terse specification of {S}'s P-dynamics makes a neat account of systematic jump-like default risk.…”

Section: Propositionmentioning

confidence: 99%

“…Such a terse specification of {S}'s P-dynamics makes a neat account of systematic jump-like default risk. The risk-neutral 15 The underlying filtration is that generated by {z P }, {N P }, and © ζ1 {τ<t} ª .…”

Section: Propositionmentioning

confidence: 99%

Assessing Credit with Equity: A CEV Model with Jump to Default

2005

View full text Add to dashboard Cite

Unlike in structural and reduced-form models, we use equity as a liquid and observable primitive to analytically value corporate bonds and credit default swaps. Restrictive assumptions on the firm's capital structure are avoided. Default is parsimoniously represented by equity value hitting the zero barrier. Default can be either predictable, according to a CEV process that yields a positive probability of diffusive default and enables the leverage effect, or unpredictable, according to a Poisson-process jump that implies non-zero credit spreads for short maturities. Easy cross-asset hedging is enabled. By means of a carefully specified pricing kernel, we also enable analytical credit-risk management under possibly systematic jump-to-default risk.JEL-Classification: G12, G33.

show abstract

“…(See [3,4,6,7,9,12,13,14].) Cathcart et al [6] studied a pricing of corporate bonds in the case when the default intensity is a linear function of the interest rate and gave semi-analytical pricing formulae. Cathcart et al [7] studied a valuation model in the case when the default intensity (hazard rate) is a linear function of the state variable and the interest rate.…”

Section: Introductionmentioning

confidence: 99%

“…Speaking on default recovery, most of authors including [2,3,4,6,9,12,13] have studied the case of exogenous default recovery which is independent on firm value whereas [1] have studied the case of endogenous recovery which is related to firm value, and [14] studied both cases of exogenous and endogenous recovery.…”

Section: Introductionmentioning

confidence: 99%

Integrals of Higher Binary Options and Defaultable Bonds with Discrete Default Information

Hyong-Chol

Kim

et al. 2013

SSRN Journal

View full text Add to dashboard Cite

Abstract. In this article, we study the problem of pricing defaultable bond with discrete default intensity and barrier under constant risk free short rate using higher order binary options and their integrals. In our credit risk model, the risk free short rate is a constant and the default event occurs in an expected manner when the firm value reaches a given default barrier at predetermined discrete announcing dates or in an unexpected manner at the first jump time of a Poisson process with given default intensity given by a step function of time variable, respectively. We consider both endogenous and exogenous default recovery. Our pricing problem is derived to a solving problem of inhomogeneous or homogeneous Black-Scholes PDEs with different coefficients and terminal value of binary type in every subinterval between the two adjacent announcing dates. In order to deal with the difference of coefficients in subintervals we use a relation between prices of higher order binaries with different coefficients. In our model, due to the inhomogenous term related to endogenous recovery, our pricing formulae are represented by not only the prices of higher binary options but also the integrals of them. So we consider a special binary option called integral of i-th binary or nothing and then we obtain the pricing formulae of our defaultable corporate bond by using the pricing formulae of higher binary options and integrals of them.

show abstract

Semi-analytical pricing of defaultable bonds in a signaling jump-default model

Cited by 30 publications

References 0 publications

What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements

What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements

Assessing Credit with Equity: A CEV Model with Jump to Default

Integrals of Higher Binary Options and Defaultable Bonds with Discrete Default Information

Contact Info

Product

Resources

About