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Please use this identifier to cite or link to this item: http://ntour.ntou.edu.tw:8080/ir/handle/987654321/39608

Title: A Defaultable Callable Bond Pricing Model
Authors: David Hua;Heng-Chih Chou;David Wang
Contributors: 國立臺灣海洋大學:航運管理學系
Keywords: defaultable bond;embedded option;square-root diffusion process;partial differential equation;finite difference method
Date: 2014-03-21
Issue Date: 2016-12-23T07:50:40Z
Publisher: Investment Management and Financial Innovations
Abstract: Abstract:This paper presents a 3D model for pricing defaultable bonds with embedded call options. The pricing model incorporates three essential ingredients in the pricing of defaultable bonds: stochastic interest rate, stochastic default risk, and call provision. Both the stochastic interest rate and the stochastic default risk are modeled as a square-root diffusion process. The default risk process is allowed to be correlated with the default-free term structure. The call provision is modeled as a constraint on the value of the bond in the finite difference scheme. The numerical example shows that the 3D model is capable of pricing defaultable bonds with embedded call options adequately. This paper can provide new insight for future research on defaultable bond pricing models.
Relation: 6(2), pp.55-63
URI: http://ntour.ntou.edu.tw:8080/ir/handle/987654321/39608
Appears in Collections:[航運管理學系] 期刊論文

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