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Pricing Corporate Defaultable Bond using Declared Firm Value

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  • Hyong-Chol O
  • Jong-Jun Jo
  • Chol-Ho Kim

Abstract

We study the pricing problem for corporate defaultable bond from the viewpoint of the investors outside the firm that could not exactly know about the information of the firm. We consider the problem for pricing of corporate defaultable bond in the case when the firm value is only declared in some fixed discrete time and unexpected default intensity is determined by the declared firm value. Here we provide a partial differential equation model for such a defaultable bond and give its pricing formula. Our pricing model is derived to solving problems of partial differential equations with random constants (de- fault intensity) and terminal values of binary types. Our main method is to use the solving method of a partial differential equation with a random constant in every subinterval and to take expectation to remove the random constants.

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File URL: http://arxiv.org/pdf/1302.3654
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number 1302.3654.

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Date of creation: Feb 2013
Date of revision: Jul 2013
Publication status: Published in Electronic Journal of Mathematical Analysis and Applications, Vol.2(1),Jan 2014,1-11
Handle: RePEc:arx:papers:1302.3654

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Web page: http://arxiv.org/

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Cited by:
  1. Hyong-Chol O & Dong-Hyok Kim & Jong-Jun Jo & Song-Hun Ri, 2013. "Integrals of Higher Binary Options and Defaultable Bond with Discrete Default Information," Papers 1305.6988, arXiv.org, revised Oct 2013.

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