Valuing defaultable bonds: an excursion time approach
Martina Nardon ()
Finance from EconWPA
Recently there has been some interest in the credit risk literature in models which involve stopping times related to excursions. The classical Black-Scholes-Merton-Cox approach postulates that default may occur, either at or before maturity, when the firm's value process falls below a critical threshold. In the excursion approach the duration of default, the time period from the financial distress announcement through its resolution, is explicitly modeled. In this contribution, we provide a review of the literature on excursion time models of credit risk. Moreover, we examine the effects on credit spreads structure of different specifications of the event that triggers default.
Keywords: Credit risk; structural models; excursion approach; default threshold; default probability. (search for similar items in EconPapers)
JEL-codes: C15 C63 G12 G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-rmg
Note: Type of Document - pdf; pages: 16
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0511015
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