English, Article edition: A Simplified Firm Value-Based Risky Discount Bond Pricing Model Alan T. Wang; Sheng-Yung Yang

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Physical Description
  • article
Language
  • English

Edition details

Title
  • A Simplified Firm Value-Based Risky Discount Bond Pricing Model
Author
  • Alan T. Wang
  • Sheng-Yung Yang
Physical Description
  • article
Notes
  • This paper proposes a simplified risky discount bond pricing model based on Longstaff and Schwartz (1995). The advantage of this model is that it yields a closed form solution for probability of default. Also, a practical feature with our model is that computing durations and other risk management tools become computationally less expensive, while the appealing properties in the LS model are preserved. The numerical comparisons show that the differences in credit spreads between this model and Longstaff and Schwartz are within a few basis points for fairly general parameter values. Moreover, the computational time is shown remarkably reduced by the simplified model. Sensitivity analysis of credit spread with respect to different parameter values is presented.
  • Corporate bond, default risk, credit spread, JEL Classification: G12, JEL Classification: G13
  • RePEc:wsi:rpbfmp:v:10:y:2007:i:03:p:445-468
Language
  • English
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