English, Article edition: AN EXTENSION OF THE BRODYâHUGHSTONâMACRINA APPROACH TO MODELING OF DEFAULTABLE BONDS MAREK RUTKOWSKI; NANNAN YU

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Bookmark: http://trove.nla.gov.au/version/83028
Physical Description
  • article
Language
  • English

Edition details

Title
  • AN EXTENSION OF THE BRODYâHUGHSTONâMACRINA APPROACH TO MODELING OF DEFAULTABLE BONDS
Author
  • MAREK RUTKOWSKI
  • NANNAN YU
Physical Description
  • article
Notes
  • The innovative information-based framework for credit risk modeling, proposed recently by Brody, Hughston, and Macrina, is extended to a more general and practically important setup of random interest rates. We first introduce the market model, and we derive an explicit expression for defaultable bond price. Next, the dynamics of the information process and dynamics of defaultable bond are found for both deterministic and random interest rates. Finally, the valuation and hedging of derivative securities are briefly examined. In particular, the valuation formula for a European option on a defaultable bond is established.
  • Credit risk, term structure, defaultable bond
  • RePEc:wsi:ijtafx:v:10:y:2007:i:03:p:557-589
Language
  • English
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