Valuation of Defaultable Bonds

Exchange Rate Dynamics and US Dollar-Denominated Sovereign Bond Prices in Emerging Markets

“…To price sovereign risky bonds based on exchange rate dynamics, Cathcart and El-Jahel (1998) propose a model in which default occurs when some signaling process hits a constant default barrier. 1 VIX is the market volatility of the US S&P 500 index which gauges the global risk appetite in the financial market.…”

On the Pricing of Defaultable Bonds Using the Framework of Barrier Options

“…These payoffs to the bondholders at the default time are always less than A. For D (4) , the additional parameter B affects its price differently. As A is lower, each bond price converges to 80.12 which is derived from the framework of Merton [10] with the same parameters.…”

“…There are errors in the equations (6) and (7) of Fujita & Ishizaka [7]. They must be replaced by (4) and (5), respectively, of the present paper.…”

“…In other words, the default time is defined by the first passage time of the firm value to some barrier, corresponding to knock-out options. Later, Longstaff & Schwartz [9] and Cathcart & El-Jahel [4] extended the Black-Cox model by considering stochastic interest rate. Those models are called the first passage time models.…”

Generalizing Merton's approach of pricing risky debt: some closed-form results

“…After this work was completed, Dr. E. Hofstetter of Imperial College informed me of the most recent work of semi-reduced model approach of pricing default debt [9]. I am grateful for the communication.…”