IDEAS home Printed from https://ideas.repec.org/a/bla/mathfi/v14y2004i3p317-350.html
   My bibliography  Save this article

A General Framework For Pricing Credit Risk

Author

Listed:
  • Alain BÉlanger
  • Steven E. Shreve
  • Dennis Wong

Abstract

A framework is provided for pricing derivatives on defaultable bonds and other credit‐risky contingent claims. The framework is in the spirit of reduced‐form models, but extends these models to include the case that default can occur only at specific times, such as coupon payment dates. Although the framework does not provide an efficient setting for obtaining results about structural models, it is sufficiently general to include most structural models, and thereby highlights the commonality between reduced‐form and structural models. Within the general framework, multiple recovery conventions for contingent claims are considered: recovery of a fraction of par, recovery of a fraction of a no‐default version of the same claim, and recovery of a fraction of the pre‐default value of the claim. A stochastic‐integral representation for credit‐risky contingent claims is provided, and the integrand for the credit exposure part of this representation is identified. In the case of intensity‐based, reduced‐form models, credit spread and credit‐risky term structure are studied.

Suggested Citation

  • Alain BÉlanger & Steven E. Shreve & Dennis Wong, 2004. "A General Framework For Pricing Credit Risk," Mathematical Finance, Wiley Blackwell, vol. 14(3), pages 317-350, July.
  • Handle: RePEc:bla:mathfi:v:14:y:2004:i:3:p:317-350
    DOI: 10.1111/j.0960-1627.2004.t01-1-00193.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0960-1627.2004.t01-1-00193.x
    Download Restriction: no

    File URL: https://libkey.io/10.1111/j.0960-1627.2004.t01-1-00193.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:mathfi:v:14:y:2004:i:3:p:317-350. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.