IDEAS home Printed from
   My bibliography  Save this paper

A Model to Price Puttable Corporate Bonds with Default Risk


  • David Wang

    (Hsuan Chuang University)


This paper presents a model for pricing puttable corporate bonds that are subject to default risk. The model incorporates three essential ingredients in the pricing of defaultable puttable bonds: stochastic interest rate, default risk, and put provision. The stochastic interest rate is modeled as a square-root diffusion process. The default risk is modeled as a constant spread, with the magnitude of this spread impacting the probability of a Poisson process governing the arrival of the default event. The put provision is modeled as a constraint on the value of the bond in the finite difference scheme. This paper can be used both as a benchmark for models for pricing puttable corporate bonds that are subject to default risk and as a direction for future research.

Suggested Citation

  • David Wang, 2005. "A Model to Price Puttable Corporate Bonds with Default Risk," Finance 0506014, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0506014
    Note: Type of Document - pdf; pages: 10

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    2. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are CEOs Rewarded for Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 901-932.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Default Risk; Puttable Bond;

    JEL classification:

    • G - Financial Economics

    NEP fields

    This paper has been announced in the following NEP Reports:


    This item is featured on the following reading lists or Wikipedia pages:
    1. Puttable bond in Wikipedia English ne '')


    Access and download statistics


    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:wpa:wuwpfi:0506014. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.