A Note on Bond Risk Differential

Ahmet Tezel

Journal of Financial and Quantitative Analysis, 1978, vol. 13, issue 3, 573-575

Abstract: In a recent paper published in this journal [1], Bierman and Hass (BH) developed a model in which the risk differential that an investor would require to compensate him for the risk of default is stated as a function of the following variables: the probability of default on annual interest payments, (1-P1); the probability of default on the principal payment at the end of the maturity of the bond, (1-P2); the default-free rate, i, and the maturity, N.

Date: 1978
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