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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| Autores principales: | , , , |
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| Formato: | JOUR |
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| Acceso en línea: | http://hdl.handle.net/20.500.12110/paper_13806645_v8_n1_p49_DeEstrada |
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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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