Valuing credit risky bonds: generalizations of first passage models

Ahmed Loulit ()

ULB Institutional Repository from ULB -- Universite Libre de Bruxelles

Abstract: This work develops some simple models to study risky corporate debt using first passage-time approach. Analytical valuation expression derived from different models as functions of firm’s values and the short-term interest rate with time-dependent parameters governing the dynamics of the firm values and interest rate. We develop some numerical approximation of the analytical valuation, which is given implicitly through Voltera integral equation related to the density of the first-passage- time that a firm reaches some specified default barrier. For some appropriate default barrier arising from financial considerations we obtain a closed-form solution, which is more flexible for numerical calculation.

Keywords: Bonds; Interest rate risk; Corporate debt; Business mathematics; Obligations (Valeurs); Taux d'intérêt -- Gestion du risque; Sociétés -- Dettes; Mathématiques financières; risky corporate debt; default barrier; First-passage- time (search for similar items in EconPapers)
Pages: 1 v. (129 p.)
Date: 2006-09-13
Note: Degree: Doctorat en sciences de gestion
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