By incorporating previous work on the default experience of low-rated corporate debt, this paper presents an introduction to risk-neutral models of risky bond pricing and uses these to examine the relationship between the default premium embodied in bond yields and actual default rates. The contribution of macroeconomic information to the default premium is also examined. The authors find that holders of low-grade bonds have, on average, been compensated for losses due to default. Copyright 1987 by American Finance Association.
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 42 (1987) Issue (Month): 1 (March) Pages: 81-97 Download reference. The following formats are available: HTML,
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