Journal of Computational Finance

Risk.net

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

Lara Cathcart and Lina El-Jahel

ABSTRACT

This paper derives analytical solutions for defaultable bonds when the underlying interest rates follow a mean-reverting square-root process. The default event occurs in an expected or an unexpected manner when the value of a signaling process that represents the credit quality of the issuer reaches a certain lower threshold or at the first jump time of a hazard-rate process, respectively. The hazard rate is dependent on the default-free interest rate. The model generates term structures of credit spreads which are consistent with empirical observations.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here