This paper provides an analytical solution for the impact of default risk on the valuation of realistically intricate claims on time-dependent uncertain income streams. Its modular structure allows us to adjust the set of assumptions concerning the event of default to the specificity of the environment which surrounds the asset. The importance of such a flexibility is illustrated in the context of corporate debt, examining the simplest case of finite-lived coupon-paying corporate bonds with principal repayment at maturity. The magnitude of risk premia, as well as the term structure of credit spreads, are, not surprisingly, largely determined by the assumed default scenario.
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