Pricing of Defaultable Bonds with Log-Normal Spread: Development of the Model and an Application to Argentinean and Brazilian Bonds During the Argentine Crisis

Mariano Cané de Estrada (), Elsa Cortina (), Constantino FontÁn () and Javier Fiori ()

Review of Derivatives Research, 2005, vol. 8, issue 1, pages 49-60

Abstract: 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. Copyright Springer Science + Business Media, Inc. 2005

Keywords: credit risk; defaultable bonds; log-normal spread (search for similar items in EconPapers)
Date: 2005

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Persistent link: http://EconPapers.repec.org/RePEc:kap:revdev:v:8:y:2005:i:1:p:49-60

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