Pricing of defaultable bonds with log-normal spread: Development of the model and an application to Argentinean and Brazilian bonds during the Argentine crisis
In this paper we describe a two-factor model for a defaultable discount bond, assuming log-normal dynamics with bounded volatility for the instantaneous short rate spread. Under some simplified hypothesis, we obtain an explicit barrier-type solution for zero recovery and constant recovery. We also p...
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| Otros Autores: | , , |
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| Lenguaje: | Inglés |
| Publicado: |
2005
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| Acceso en línea: | Registro en Scopus DOI Handle Registro en la Biblioteca Digital |
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| Sumario: | In this paper we describe a two-factor model for a defaultable discount bond, assuming log-normal dynamics with bounded volatility for the instantaneous short rate spread. Under some simplified hypothesis, we obtain an explicit barrier-type solution for zero recovery and constant recovery. We also present a numerical application for Argentinean and Brazilian Sovereign Bonds during the default crisis of Argentina. © 2005 Springer Science + Business Media, Inc. |
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| ISSN: | 13806645 |
| DOI: | 10.1007/s11147-005-1007-8 |